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Investors swarmed over Ford Motor Co.’s new $1.75 billion green-bond deal on Tuesday to help boost its development of more electric vehicles.
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Related video: The energy transition and the fight over green fundingDuration 6:57 View on Watch
Order books for Ford’s speculative-grade debt deal reached more than $5 billion, according to a portfolio manager and Informa Global Markets, which helped the auto giant achieve cheaper funding than initially expected.
The bond deal came the same day President Joe Biden signed the Inflation Reduction Act into law, a smaller version of the earlier Build Back Better proposal, which includes an up to $7,500 credit for qualifying electric vehicles if the assembly is finalized in North America.
Ford said in a public filing Tuesday that proceeds from the bond financing will aim to fund clean-transportation projects, including the design, development and manufacturing of electric vehicles in North America. This includes next-generation electric F-150 pickups, future Lincoln vehicles and other vehicles that have yet to be announced.
Ford didn’t immediately respond to a request for comment.
Its single 10-year class of green bonds, rated Ba2 by Moody’s Investors Service and BB+ by S&P Global, fetched 6.1%, according to Informa. Initial talk was in the 6.375% range, CreditSights said.
That compares with the yield on the ICE BofA US High Yield Index narrowing to about 7.2% this week from a peak of 8.8% in July, after the junk-bond market staged a record rally in recent weeks.EV tax credit
In conjunction with the act’s signing, the U.S. Treasury Department on Tuesday released a two-page fact sheet and related guidance on how the law can make electric vehicles more affordable for households, including for model 2022 and 2023 EVs.
Read: Here’s how the Inflation Reduction Act’s rebates and tax credits for heat pumps and solar can lower your energy bill
Like a wave of other companies in the early part of the COVID crisis, Ford lost its coveted investment-grade credit rating in 2020 after it was downgraded to speculative, or “junk,” status.
In late July, Ford reported second-quarter earnings that blew past Wall Street expectations, despite continued supply-chain issues and concerns about the U.S. economy. Total revenue rose 50% to $40.2 billion, from $26.8 billion a year ago, including a 57% increase in automotive revenue. The “popularity” of Ford’s lineup drove the “solid” results, the company said.
In recent years, investors have been pouring funds into strategies that aim to produce better environmental, social and governance outcomes. Global green-bond issuance has remained robust in 2022, totaling $136 billion in the year’s first half, according to Moody’s Investors Service.
Green bonds were expected to account for about half of Moody’s $1 trillion forecast for sustainable bond issuance this year, a category that includes green, social, sustainability and sustainability-linked bonds.
Shares of Ford were up 0.7% Tuesday, while the S&P 500 index and Dow Jones Industrial Average finished 0.2% and 0.7% higher, respectively, to extend a powerful summer rally.
Read: Tesla and Ford attract new investments from George Soros’s fund
Ford Taps Green Bond Market to Fund EV Development
Olivia Raimonde and Teresa Xie
Tue, August 16, 2022
(Bloomberg) -- Ford Motor Co. is taking advantage of a credit-market rally to sell green bonds.
The vehicle maker sold $1.75 billion of debt expected to mature in 10 years, according to a person familiar with the matter. The security will yield 6.1% after early pricing discussions of around 6.375%, the person said. That compares to an average yield of 5.97% for debt in the BB tier.
Fitch Ratings assigned the bond a preliminary BB+ rating with a positive outlook. Although the ratings firm expects supply chain and inflationary pressures to continue for the rest of the year, the company’s profitability is still on the path to improvement, as it “benefits from ongoing redesign activities, as well as execution on its Ford+ plan,” according to the note.
The Dearborn, Michigan-based company will use the proceeds to help finance new existing green projects, the person said. Ford expects to allocate the net proceeds from this offering exclusively to clean transportation projects and specifically to the design, development and manufacture of its battery electric vehicle portfolio. The company expects to fully allocate the net proceeds of this offering by the end of 2023, said the person.
This is the first junk-rated green sale since June 1 and Ford’s first green issuance since its $2.5 billion debut green bond last year, according to data compiled by Bloomberg. The deal was led by Barclays Plc.
Ford’s new debt sale is part of the company’s overall green strategy, which includes spending $50 billion to build two million electric vehicles a year by 2026. The company said it is the first US automaker to commit to a sustainable financing strategy for both its auto and lending unit, Ford Credit.
Ford may tap the bond market before its next round of debt maturities in June, which could be a near-term consideration for bond spreads, according to Bloomberg Intelligence credit analyst Joel Levington. There has been somewhat of a revival in junk-bond markets this week as a market-rally pushes yields lower, drawing issuers off the sidelines to sell debt.
In November 2021, Ford repurchased $5 billion in junk-rated debt to bolster its balance sheet after shutting down factories at the onset of the pandemic in April 2020.
“Ford’s credit ratings are on an upward trajectory with a potential to cross back into investment grade in 2023,” Levington said. “Credit rating agencies are looking for more consistent free cash flows and manufacturing operations, as well as considering where economic conditions will be next year.” At the end of the second quarter, Ford reported $2.9 billion in operating cash flow and $40.2 billion in revenue.
Olivia Raimonde and Teresa Xie
Tue, August 16, 2022
(Bloomberg) -- Ford Motor Co. is taking advantage of a credit-market rally to sell green bonds.
The vehicle maker sold $1.75 billion of debt expected to mature in 10 years, according to a person familiar with the matter. The security will yield 6.1% after early pricing discussions of around 6.375%, the person said. That compares to an average yield of 5.97% for debt in the BB tier.
Fitch Ratings assigned the bond a preliminary BB+ rating with a positive outlook. Although the ratings firm expects supply chain and inflationary pressures to continue for the rest of the year, the company’s profitability is still on the path to improvement, as it “benefits from ongoing redesign activities, as well as execution on its Ford+ plan,” according to the note.
The Dearborn, Michigan-based company will use the proceeds to help finance new existing green projects, the person said. Ford expects to allocate the net proceeds from this offering exclusively to clean transportation projects and specifically to the design, development and manufacture of its battery electric vehicle portfolio. The company expects to fully allocate the net proceeds of this offering by the end of 2023, said the person.
This is the first junk-rated green sale since June 1 and Ford’s first green issuance since its $2.5 billion debut green bond last year, according to data compiled by Bloomberg. The deal was led by Barclays Plc.
Ford’s new debt sale is part of the company’s overall green strategy, which includes spending $50 billion to build two million electric vehicles a year by 2026. The company said it is the first US automaker to commit to a sustainable financing strategy for both its auto and lending unit, Ford Credit.
Ford may tap the bond market before its next round of debt maturities in June, which could be a near-term consideration for bond spreads, according to Bloomberg Intelligence credit analyst Joel Levington. There has been somewhat of a revival in junk-bond markets this week as a market-rally pushes yields lower, drawing issuers off the sidelines to sell debt.
In November 2021, Ford repurchased $5 billion in junk-rated debt to bolster its balance sheet after shutting down factories at the onset of the pandemic in April 2020.
“Ford’s credit ratings are on an upward trajectory with a potential to cross back into investment grade in 2023,” Levington said. “Credit rating agencies are looking for more consistent free cash flows and manufacturing operations, as well as considering where economic conditions will be next year.” At the end of the second quarter, Ford reported $2.9 billion in operating cash flow and $40.2 billion in revenue.
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