Ford Sells $1.25 Billion of Debt as Automaker Plans Escape From Junk Grade
Ford Motor Co., last year’s biggest issuer of high-yield corporate debt, sold $1.25 billion in seven-year notes a day after yields on its similar-maturity company debt fell to the lowest on record.
The second-largest U.S. automaker issued the 6.625 percent notes at a yield of 6.9 percent through its Ford Motor Credit Co. unit, according to data compiled by Bloomberg.
Ford sold the securities less than a week after reporting its biggest first-half profit in 12 years and debt reductions aimed at restoring the investment-grade ratings it lost in 2005. The Dearborn, Michigan-based company raised the debt as yields on speculative-grade bonds fell to the lowest in more than two months, according to Bank of America Merrill Lynch index data.
“They’ve been very smart about when they issue,” said Kathleen Gaffney, co-manager of the $18.6 billion Loomis Sayles Bond Fund, which has outperformed 96 percent of its peers in the last year, according to data compiled by Bloomberg. “They’re showing really high-quality management there.”
Yields on Ford’s $1.5 billion of 8 percent notes due in 2016 fell yesterday to 6.56 percent, the lowest since they were issued in 2006, as the price rose to 107.375 cents on the dollar, according to Trace, the bond price reporting system of the Financial Industry Regulatory Authority.
The bonds fell 0.375 cent to 107 cents on the dollar to yield 6.63 percent, or 4.9 percentage points more than similar- maturity Treasuries, as of 2:09 p.m. in New York, Trace data show. Yields have fallen from about 28 percent in October 2008.
Taurus Sedans
Moody’s Investors Service rates Ford Motor Credit’s unsecured debt Ba3 and Standard & Poor’s grades the company three steps lower at B-.
Ford, which earned $4.7 billion in the year’s first six months, its largest first-half profit since 1998, said July 23 it planned to regain its investment-grade rankings.
The only major U.S. automaker to avoid bankruptcy last year has been gaining market share in the U.S. with redesigned models such as the Fusion and Taurus sedans. Ford controlled 17.5 percent of the U.S. auto market in the first half, up from 16.1 percent last year, according to researcher Autodata of Woodcliff Lake, New Jersey.
High-yield, high-risk bonds are rated below Baa3 by Moody’s and BBB- by S&P. Yields on the debt fell to 8.543 yesterday, the lowest since May 5, when they were 8.45 percent, Bank of America Merrill Lynch index data show.
Bank of America Corp., BNP Paribas, Citigroup Inc. and Goldman Sachs Group Inc. managed the sale, Ford said in a prospectus filed with the Securities and Exchange Commission that didn’t specify the size or timing of the offering.
Ford Motor Credit plans to sell $4 billion to $6 billion in unsecured debt this year, the company said on July 23. It last tapped the corporate bond market in April, when it sold $1.75 billion of five-year, 7 percent notes, and has sold $4.5 billion including today’s sale, according to data compiled by Bloomberg. It issued $4.6 billion of bonds last year, Bloomberg data show.
General Motors Co. is the biggest U.S. automaker.
To contact the reporter on this story: Tim Catts in New York at tcatts1@bloomberg.net.
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