Capital Markets

Bond Buyers Drive Hard Bargain with Ford

A year after the struggling automaker's downgrade to junk, its debt sale comes with a hefty premium.
Stephen TaubApril 7, 2006

Ford Motor Credit Co., the automaker’s finance unit, is paying dearly for continued access to the market for unsecured debt.

Even as rival General Motors agreed to sell a 51 percent interest in its own finance arm (General Motors Acceptance Corp.) to an investor group led by private-equity firm Cerberus Capital Management, Ford tripled the size of a planned $500 million offering, to $1.5 billion in six-year floating-rate notes.

Those notes, however, will pay a hefty 9.45 percent for at least the next three months, reported Bloomberg, the highest yield Ford has offered in 14 years. What’s more, that earlier offering locked in a 9.95 yield for four decades.

Bloomberg noted that the yield on the current offering was priced at 445 basis points over the three-month London interbank offered rate. Ford paid only 300 basis points over Libor as recently as October, when it sold $500 million in two-year floating-rate notes, the wire service reported.

“Ford wanted to prove to a lot of people, and themselves, that they have access if they need it,” Christopher Wolfe of Fitch Ratings told Bloomberg, which also noted that the automaker was downgraded to junk last May. “I don’t want to say it’s crazy, but I don’t think it’s something that you want to do as a long-term funding plan.” A spokesperson for the division told Bloomberg that the transaction represented just a small part of its funding.

Ford plans to sell as much as $3 billion of corporate bonds this year, added the wire service, and up to four times that amount in loan-backed securities.