Ford Motor Credit Plans Bond Sale as Ascent to Investment Grade Quickens

Ford Motor Credit Co., the finance unit of the second-largest U.S. automaker, sold $1 billion of notes as analysts project the parent company may regain investment-grade status in the next six months.

The unit issued 5.875 percent, 10-year senior unsecured notes, according to data compiled by Bloomberg. Ford is rated Ba2 by Moody’s Investors Service and BB- by Standard & Poor’s, with “positive” outlooks, Bloomberg data show.

Ford has been slashing debt and boosting cash to regain the investment grade it lost in 2005, as it ceded market share while facing rising retirement and health-care costs. The Dearborn, Michigan-based company, which has cut debt by more than $20 billion in the past five quarters, is poised to reach the upper tier of credit ratings in six months, JPMorgan Chase & Co. analysts said yesterday.

“To achieve this, we think the company will need to retire the remainder of its term loan, negotiate the upcoming UAW contract without an extended strike and continue to post solid earnings as it has under below-trend volumes over the past eight quarters,” JPMorgan analysts Eric Selle and Jenna Giannelli wrote in a July 26 note.

Ford, which traces its roots to 1903, is set to begin contract talks this week with the United Auto Workers. The company retired $2.3 billion of its term loan B in the second quarter and will have $1.8 billion outstanding after that payment, Ford said last month.

April Sale

The yield on the notes compares with the $2.75 billion sale of 5.25 percent 10-year debt from New York-based investment bank Goldman Sachs Group Inc. on July 22 and $375 million issue of 6.125 percent 10-year debt from St. Louis-based discount brokerage Scottrade Inc. this month.

Bonds rated BB yield 6.1 percent on average, according to Bank of America Merrill Lynch index data. The average BBB rated bond, the lowest tier of investment-grade, yields 4.3 percent, the data show.

Barclays Capital, Goldman Sachs, HSBC Holdings Plc, and Royal Bank of Scotland Group Plc managed the sale, Bloomberg data show.

Ford Motor Credit last tapped the debt market for similar securities in April, issuing $1.25 billion of 5 percent senior unsecured notes maturing in May 2018, according to data compiled by Bloomberg. That represents the lowest coupon on a junk bond with that maturity this year, the data show.

Those bonds fell to 99.75 cents on the dollar at 1:56 p.m. to yield 5.04 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

‘On Track’

Ford said net income fell to $2.4 billion from $2.6 billion a year earlier, according to a statement yesterday.

Excluding some items, profit was 65 cents a share, beating the 61-cent average of 14 estimates compiled by Bloomberg. Sales climbed 1.4 percent to $35.5 billion even after last year’s sale of Volvo Cars.

“When we raised our rating on Ford in February 2011 and assigned a positive outlook, we expected the North American market to continue its gradual recovery, and that Ford’s global automotive operations would generate at least low-single-digit pretax margins and positive operating cash flow in 2011,” S&P analysts Robert Schulz and Dan Picciotto wrote in a note yesterday. ‘Both of these suppositions are on track even though the sales recovery is more fragile than we assumed earlier in 2011 because of a weak economic recovery.”

Ford Motor Credit also tapped the market last month for $1 billion of five-year secured notes that the company will exchange for unsecured bonds if its debt ratings are lifted to investment-grade, Bloomberg data show.

Ford Motor Credit issued $4.5 billion of speculative-grade bonds last year, the second biggest issuer, according to data compiled by Bloomberg. Ally Financial Inc. sold $6.65 billion of the debt, the data show. High-yield, high-risk notes are rated below Baa3 by Moody’s and less than BBB- by S&P.

To contact the reporters on this story: Sapna Maheshwari in New York at sapnam@bloomberg.net; Craig Trudell in Southfield, Michigan, at ctrudell1@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net

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