Ford Motor Co. is planning to sell $1.5 billion of bonds in its first benchmark issue since the second-largest U.S. automaker regained investment-grade ratings from Moody’s Investors Service last month.
Ford Motor Credit Co., its financing unit, may sell five-year notes as soon as today to yield 230 basis points more than similar-maturity Treasuries, according to a person familiar with the transaction who asked not to be identified because details are private. The spread was reduced from initial talk of about 240 basis points, the person said.
Moody’s raised its rating on Ford by two levels to Baa3, the lowest level of investment grade, from Ba2, on May 22. The move, which followed Fitch Ratings’ upgrade of Ford from junk status on April 24, enabled Ford to regain control of its logo and other assets pledged as collateral to obtain a $23.4 billion loan to keep the business going in 2006.
Ford may pay a spread that’s more than 120 basis points less than the premium on its last sale of five-year notes in January, according to data compiled by Bloomberg. At that time, the company sold $1 billion of 4.25 percent debt that yielded 354.1 basis points, or 3.54 percentage points, more than Treasuries.
Those securities have climbed to 105.75 cents on the dollar to yield 2.92 percent, with the spread tightening to 220 basis points, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
The Dearborn, Michigan-based automaker’s second upgrade meant that its debt shifted out of Barclays Plc’s and Bank of America Corp.’s junk-bond indexes to their high-grade gauges. Many bond-fund managers adjust their holdings to match the indexes.
Ford Motor Credit converted $2.5 billion of asset-backed securities into unsecured debt yesterday. The bonds, linked to vehicle loans, were issued in 2011 and designed to automatically convert when two of the three major rating companies lifted the automaker’s credit ranking to investment grade.
Ford slid to junk in 2005. High-yield, high-risk, or junk bonds, are graded below Baa3 by Moody’s and lower than BBB- at Standard & Poor’s and Fitch. Benchmark sales typically are at least $500 million.