Not long ago, Ford (NYSE: F) announced its latest bold move: The Dearborn, Mich., automaker plans to retire another $3 billion of debt, this time by redeeming a series of convertible preferred shares issued several years ago.

Coming on top of the huge debt-reduction moves Ford made last year, this is a big deal, one that moves the company another big step closer to its long-sought goal of an investment-grade credit rating.

It's a big deal. But whether it's a good one might depend on your perspective.

A good move for Ford
This move is the latest in a long series the company has made to pay down its "automotive debt," its term for debt attributable to its core business of making cars, rather than to its finance arm (which is in good shape). Much of that debt was incurred at the beginning of the company's turnaround effort in 2006, not long after CEO Alan Mulally joined the company.

That debt pile peaked at well over $30 billion in 2009 but has come down dramatically in the last year. How dramatically? About $14.5 billion worth, thanks to moves like:

  • VEBA-b-gone. "VEBA" is shorthand for a series of trusts set up as part of the landmark 2008 labor deal between the Detroit automakers and the United Auto Workers. These trusts ensure that health care for UAW retirees remains funded while allowing the automakers to get that obligation off their books -- after contributing a large sum to fund the trusts, $15 billion in Ford's case. Ford had until 2022 to make all of its payments but chose to pay the whole thing off early, saving hundreds of millions of dollars in interest every year.
  • Revolving credit revolves back. Back in 2006, Ford famously worked with JPMorgan Chase, Goldman Sachs, and Citigroup to set up the "mother of all subprime mortgages" -- a series of loans including a revolving credit line of about $10 billion. That money, secured by just about everything Ford had, was the company's product-development lifeline and a big part of how the company stayed afloat during the economic downturn. Ford knocked the balance down by $6.7 billion in 2010 and will have no trouble paying off the rest before it's due in 2013.

Ford also retired two other series of convertibles last year, to the tune of $2.6 billion. Those deals were similar to this latest one, but this is a little higher profile -- thanks to Jim Cramer.

Cramer's favorite Ford shares
What's Cramer got to do with it? The shares in question are properly called "Ford Motor Company Capital Trust II 6.50% Cumulative Convertible Trust Preferred Securities" (NYSE: F-PS). These are the shares that were recommended by Cramer, among others, in the midst of the economic crisis when prices of anything with an automaker's name on it were wildly low, making this one of The Big Mouth's better high-profile calls. (Of course, he recommended soon-to-be-bankrupt General Motors (NYSE: GM) at the same time, but I digress.)

The "convertible" part means that each of the shares can be exchanged for 2.8769 shares of Ford common stock under certain conditions. There were moments in early 2009 when these preferreds were trading at less than 2.8769 times the price of the common stock, and that plus the promise that the then-suspended dividends would be paid in full (assuming the company survived) did indeed make them an attractive buy -- if you thought Ford was likely to survive.

I was one of those folks who grabbed a bunch of those convertible shares in early 2009, and like others in Fooldom I've seen a nice return. But I won't be seeing much more, as Ford has decreed that those shares will be converted to common stock or cash by March 15.

And that's where it gets a little tricky.

A mixed blessing for preferred shareholders
On the one hand, as a Ford shareholder, what's not to like about a deal that will knock another $3 billion or so off the "automotive debt" pile while saving the company another $190 million a year in payments?

On the other hand, these shares peaked at more than $55 in January, and Ford is going to pay me about $50.87 for each ... or I can choose that common stock offer instead, which at current prices works out to trading $50.87 of preferred for a little more than $43 worth of common.


Nobody knows what the share prices will do over the next couple of weeks, of course, but if things stay stable I'm inclined to take the cash and just buy Ford common stock with it on my own.

I could buy lots of other things, but I think the case for Ford remains strong. Recent product launches have gone very well, the company has plenty of money in the bank, and its continued financial discipline and execution has been nothing short of impressive. Add in preliminary sales data from Edmunds that suggest that Ford will widen its U.S. sales lead over Toyota (NYSE: TM) and Honda (NYSE: HMC) when February sales numbers are announced later this week, and I think shareholders have quite a bit of potential upside left.

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Fool contributor John Rosevear owns shares of Ford and General Motors. General Motors is a Motley Fool Inside Value selection. Ford Motor is a Motley Fool Stock Advisor pick. The Fool owns shares of Ford Motor. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.