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Ford Bonds Tap Consumer Revival With Nordstrom: Credit Markets

The Ford Motor Co. logo is displayed during a media preview of the New York International Auto Show (NYIAS) in New York, on March 31, 2010. Photographer: Jin Lee/Bloomberg
The Ford Motor Co. logo is displayed during a media preview of the New York International Auto Show (NYIAS) in New York, on March 31, 2010. Photographer: Jin Lee/Bloomberg

April 21 (Bloomberg) -- Ford Motor Co. sold bonds backed by auto loans at a third of the relative yield it paid six months ago and Nordstrom Inc. issued notes at its lowest rate ever as investors gain confidence that consumer spending is strengthening.

Ford, the only U.S.-based automaker to decline a federal bailout, sold the largest portion of its $1.09 billion deal at a yield of 15 basis points more than benchmark interest rates, compared with 45 basis points in November, a person familiar with the matter said. Seattle-based retailer Nordstrom sold $500 million of 10-year, 4.75 percent securities.

Corporate borrowers that serve U.S. consumers are selling debt as returns on their bonds accelerate. Retailers, which lost 0.35 percent in March, have gained 0.96 percent this month through yesterday, according to Bank of America Merrill Lynch index data. Retail sales rose 1.6 percent last month, more than anticipated and the biggest gain in four months, increasing the odds of an economic recovery.

“There’s no question that the consumer is back,” said James C. Camp, managing director of fixed income at Eagle Asset Management Inc. in St. Petersburg, Florida, with $17 billion in assets under management.

Retailers’ sales, which declined every month from September 2008 to August 2009, have rebounded as employment and consumer confidence have improved. The U.S. economy added 162,000 jobs in March, the most in three years. The Conference Board’s confidence index rose to 52.5 last month from 46.4 in February.

Standard & Poor’s raised its ratings on consumer cyclical companies such as retailers by a 2-to-1 margin this year, compared with 0.8-to-1 for corporate America overall, according to data compiled by Bloomberg.

Mortgage-Backed Securities

Elsewhere in credit markets, the extra yield investors demand to own corporate bonds rather than government debt was unchanged yesterday at 143 basis points, or 1.43 percentage point, the lowest since November 2007 and down from a record 511 basis points in March 2009, the Bank of America Merrill Lynch Global Broad Market Corporate Index shows. Yields averaged 3.929 percent.

Citigroup Inc. is attempting to sell $222.4 million of securities backed by new mortgages, the first transaction of its type in more than two years, people familiar with the offering said.

Redwood Trust Inc., the Mill Valley, California-based real estate investment trust that specializes in jumbo-mortgage assets, is being called the securitization’s sponsor, which may mean it will buy more-junior classes, said the people, who declined to be identified because the sale is private. Citigroup, which made the 255 loans in the past 11 months, is underwriting the potential sale with JPMorgan Chase & Co. as co-manager, the people said.

Nordstrom Offering

Nordstrom’s 10-year senior unsecured notes priced to yield 100 basis points more than similar-maturity Treasuries, Bloomberg data show. The chain initially planned to sell $350 million of the debt. In November 2007, Nordstrom sold $650 million of notes due in January 2018 at a spread of 230 basis points, Bloomberg data show.

Ford is among companies selling asset-backed securities after the end of a U.S. aid program, showing investors don’t need government assistance to buy bonds backed by consumer debt. The Federal Reserve’s Term Asset Backed Securities Loan Facility concluded last month.

“Better funding costs makes it easier for Ford to go out and make loans,” said John McElravey, an analyst at Wells Fargo Securities in Charlotte, North Carolina.

LeasePlan

The new issue is Ford’s first sale of bonds composed of auto loans since TALF ended, though the Dearborn, Michigan-based automaker’s prior issue in November was held outside of TALF. Daimler AG, Bayerische Motoren Werke AG and Deere & Co. all sold similar debt last week, Bloomberg data show.

LeasePlan Corp NV, the Dutch car-fleet management company, sold 594 million euros of bonds backed by U.K. auto leases yesterday. The AAA rated notes, issued through special-purpose company Bumper 2009-3 A, will pay a coupon of 1.5 percentage points more than the euro interbank offered rate, according to a person familiar with the sale. Royal Bank of Scotland Group Plc managed the transaction for the car-fleet management company, the person said.

Jobless Rate

With the U.S. jobless rate at 9.7 percent, the recovery in consumer confidence is fragile, said Scott MacDonald, head of credit and economics research at Stamford, Connecticut-based Aladdin Capital Holdings LLC, which oversees $12.5 billion.

“There is no way the consumer can have the same dynamic impact on the U.S. economy it did before 2008,” he said. “Unemployment is still an issue and there are still housing foreclosures. The consumer binge pre-2008 was based on borrowed money, the punch bowl is gone.”

The performance of retailers’ bonds compares with a gain of 0.97 percent this month through yesterday for U.S. investment-grade debt, following a 0.35 percent return in March, according to Bank of America Merrill Lynch index data.

Wal-Mart Stores Inc., the world’s biggest retailer, sold $2 billion of debt on March 24, tapping the U.S. corporate bond market for the first time since July. The Bentonville, Arkansas-based retailer’s five-year notes climbed 0.864 cent to 100.173 cents on the dollar as of 2:01 p.m. in New York yesterday, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The bonds yielded 2.837 percent.

Lowe’s Cos., the second-largest U.S. seller of home-improvement goods, issued $1 billion of notes on April 12 in its first sale since 2007. The Mooresville, North Carolina-based company’s 10-year notes rose to 1.844 cent to 101.662 cents on the dollar to yield 4.42 percent, Trace data showed. Atlanta-based Home Depot Inc. is the biggest U.S. home-improvement retailer.

“It’s mostly an economic story from this point, with people looking for signs of life and finding some,” said James Goldstein, an analyst at CreditSights Inc. in New York. “The worst is behind retailers.”

To contact the reporters on this story: Tim Catts in New York at tcatts1@bloomberg.net; Bryan Keogh in London at bkeogh4@bloomberg.net; Kate Haywood in London at khaywood@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net; Paul Armstrong at Parmstrong10@bloomberg.net

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