Ford said today it was reducing debt by US$4bn, primarily by paying $3.8bn in cash to the UAW Retiree Medical Benefits Trust by making scheduled debt payments due on notes held by the trust and paying the entire remaining balance of one note ahead of schedule.

The automaker said it would pay $255m of previously deferred quarterly distributions on 6.50% trust securities and resume quarterly payments with one due on 15 July.

It has also agreed more flexibility over a three-year period to pre-pay all or a portion of the remaining $3.6 bn outstanding principal on a second note.

“These actions, combined with an April payment of $3bn on its 2013 revolving credit facility, reduced Ford’s debt by more than $7bn during the second quarter; the total debt reduction will save [us] more than $470m in annual interest expense,” the automaker said.

The company said it was acting to further strengthen its balance sheet as it gains momentum on its One Ford plan and remains on track to deliver solid profits and positive automotive operating-related cash flow this year.

“Our One Ford plan to profitably grow our business is working, and we are increasingly confident about the future,” said Ford president and CEO Alan Mulally.

“We expect to continue to improve our balance sheet as we deliver on our plan. Importantly, our business results make it possible to take these actions while still accelerating the investments we are making in our business to serve our customers with the very best cars and trucks.

“We are pleased to make these payments ahead of schedule for the benefit of Ford and our UAW-Ford retirees who count on the trust for their health care benefits,” Mulally said.

In spring 2009 Ford reduced automotive debt by $10.1bn has raised more than $5.7bn since the second quarter of 2009 through several equity and equity-linked offerings.

The UAW Retiree Medical Benefits Trust was created to assume responsibility for providing retiree health care benefits to eligible Ford-UAW employees and their dependants, the cost of which would be funded with assets contributed by Ford.

The settlement was amended in March 2009 to create Notes A and B, which smoothed Ford’s payment obligations and gave Ford the option to use Ford stock to make payments under Note B. On 31 December, 2009, Ford completed the transfer of assets, including Notes A and B, to the UAW Retiree Medical Benefits Trust, and the trust assumed the retiree health care liabilities.

The payments made on Wednesday resulted from an agreement last week between Ford and the UAW Retiree Medical Benefits Trust.