Bloomberg News

Ford Sells $1.25 Billion of Bonds After Moody’s Rating Boost

October 28, 2011

Oct. 28 (Bloomberg) -- Ford Motor Co. sold $1.25 billion of bonds after Moody’s Investors Service raised the credit rating of the second-biggest U.S. automaker to the cusp of investment grade.

Ford Motor Credit Co. sold 3.875 percent senior unsecured three-year notes at par, according to data compiled by Bloomberg. That compares with the 3.2 percent yield on average investment-grade debt due in three to five years, according to Bank of America Merrill Lynch index data.

Moody’s raised Dearborn, Michigan-based Ford and rival General Motors Co. to Ba1 yesterday, the highest non-investment grade level, with a positive outlook on both, saying the automakers’ four-year agreements with the United Auto Workers allow the companies to sustain “competitive” cost structures in North America. Ford is working to regain the investment-grade status it lost in 2005, which may happen as early as next year.

“The upgrade and the positive outlook reflect what they’ve done and point to some of the things we think could happen next year,” Bruce Clark, a New York-based analyst for Moody’s, said in a telephone interview. “That’s the basic message of the positive outlook, that we’ll probably be taking a look at the credit again in 2012.”

The bonds that Ford marketed have a lower coupon than three-year notes that insurer American International Group Inc. sold on Sept. 8, Bloomberg data show. The $1.2 billion of 4.25 percent notes, graded Baa1 by Moody’s and a step higher at A- by Standard & Poor’s, priced at a 412.5 basis-point spread.

Debt-Cutting Goal

Price talk on the debt earlier was for yields of about 4 percent, said a person with knowledge of the transaction, who declined to be identified because terms weren’t yet set.

S&P raised Ford’s credit rating two levels to BB+, the highest non-investment grade, from BB-, and assigned a stable outlook on Oct. 21.

Ford reiterated its goal of reducing debt to less than $10 billion by 2015 on Oct. 26, when it reported third-quarter net income of $1.65 billion. The company had automotive debt of $12.7 billion on Sept. 30, down from $14 billion on June 30.

“Ford seems driven to reduce automotive debt and strengthen its balance sheet,” Evan Mann, a senior high-yield analyst with Gimme Credit LLC in New York, wrote in an Oct. 27 note. “Improved operating results and cash flow generation along with continued debt reductions should lead to stronger credit ratios over the intermediate term.”

Europe Effects

Before today’s sale, Ford Motor Credit last tapped the market in July, according to data compiled by Bloomberg.

The unit sold $1 billion of 5.875 percent, 10-year senior unsecured notes on July 27 that priced to yield 289.1 basis points above similar-maturity Treasuries, Bloomberg data show. On that day, the average BBB rated bond paid a spread of 203 basis points, while BB debt had a 395 basis-point spread, according to Bank of America Merrill Lynch index data.

Ford’s and GM’s ascent to investment-grade may be affected by a worsening in Europe’s sovereign-debt crisis, according to Moody’s.

“The outlook that we’re concerned with in Europe is not so much auto demand there, it’s the broader macroeconomic issue and the degree to which what happens in Europe could spill out into the global financial markets,” Clark said in the interview.

Bank of Nova Scotia sold $2 billion of 1.25 percent, three- year covered bonds today, after Bank of Montreal and Royal Bank of Canada also tapped the U.S. market this week, Bloomberg data show.

Covered bonds are usually backed by mortgages or public- sector loans. The collateral underlying the debt remains with the issuer, which also guarantees the bonds.

--With assistance from Joseph Ciolli in New York. Editors: John Parry, Alan Goldstein, Mitchell Martin

To contact the reporter 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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