Ford Motor Co. is taking its first drive through the high-yield market in years, looking to shore up liquidity after reporting one of its largest ever quarterly losses.
The automaker is seeking to raise $8 billion of unsecured bonds in three parts. The longest maturity, a 10-year security, will yield 9.625%, after initially being marketed around 11%, according to a person with knowledge of the matter. It’s the company’s first debt offering since losing its investment-grade ratings on March 25, becoming the largest fallen angel of the current downgrade cycle.
“Demand has been very strong,” said T.R. Reid, a Ford spokesman. “We’re very pleased with what we found out there.”
Chief Executive Officer Jim Hackett has already suspended Ford’s dividend and drew $15.4 billion from two credit lines last month to shore up funds. The company lost about $2 billion in the first quarter, according to preliminary results released Friday.
Ford had hinted at raising more cash to weather falling sales and an impending collapse in car prices when it released preliminary first quarter earnings on April 13. The initial results suggested Ford burned through $8 billion of cash since the end of last year, according to Bloomberg Intelligence analyst Joel Levington. The company could boost funding by tapping the U.S. asset-backed securities market, he said.
Ford shares rose 4.5% as of 1:40 p.m. Friday in New York following the announcement of the sale, which will boost liquidity. Its 7.45% bonds due 2031 rose nearly 2 cents on the dollar to around 88 cents, according to Trace.
What Bloomberg Intelligence Says
Bondholders must recognize that Ford is likely heading into its most challenging quarter, and raters may take further actions given bleak industry fundamentals. — Joel Levington, BI credit analyst
Ford has so far been the biggest beneficiary of an expanded program by the Federal Reserve to buy some bonds recently downgraded to high yield from investment grade. That addition has further propelled a rally in credit, first triggered by the Fed’s initial announcement on March 23 to buy some high-grade debt.
While Ford could raise secured debt if it decides to, “we continue to worry that its significant cash burn and increasing debt load could very much cap the equity value, even when the industry recovers,” Emmanuel Rosner, a Deutsche Bank AG analyst with a hold rating on Ford shares, said in an April 13 report. The company has roughly $157 billion of debt outstanding, most of which comes from its higher-quality finance unit.
Bank of America Corp., Citigroup Inc., Goldman Sachs Group Inc., JPMorgan Chase & Co. and Morgan Stanley are managing the bond sale, the person said.
— Molly Smith (Bloomberg)
