Ford issues $8 billion debt securities

Aims to support cash reserves as coronavirus pummels sales and production


Reuters April 19, 2020
A Reuters file photo.

NEW YORK/ BENGALURU: Ford Motor Co on Friday raised $8 billion from corporate debt investors to shore up its cash reserves as the coronavirus outbreak pummelled vehicle sales and production, resulting in an estimated loss of about $2 billion for the first quarter.

The Dearborn, a Michigan-based company, which lost its investment-grade status in March, raised new funds with a three-part debt offering, according to a regulatory filing. Investors said Ford benefited from the US Federal Reserve’s move last week to backstop debt offerings by companies that lost investment-grade credit ratings after the Covid-19 crisis accelerated in the United States, International Financing Review reported on Friday.

“This deal is a good sign of the growing confidence around the improving market backdrop with respect to liquidity as well as more promising views around the economic outlook,” said Bank of America Securities head of an investment-grade syndicate Dan Mead, which was one of the lead banks on the Ford deal. In an environment where interest rates on cash savings are close to zero, Ford will pay investors interest of between 8.5% and 9.625% on the new debt securities.

There was around $40 billion worth of demand from investors across the three debt packages, according to a person familiar with the matter. Ford had earlier drawn down over $15 billion from revolving credit lines to ride out the pandemic, which forced the shutdown of its North American and European factories during the past month.

Separately, General Motors Co disclosed in a regulatory filing that it had entered into a 364-day revolving credit agreement of $1.95 billion. The automaker said it has allocated the credit line for exclusive use by its financial services business.

Ford on Friday said it had to put up additional guarantees for earlier loans - not the notes sold Friday - because it has not maintained an investment-grade status. It has suspended its dividend for the quarter. Staunching the cash drain and restarting profitable operations in Europe and North America will be critical for Ford in the months ahead.  

Published in The Express Tribune, April 19th, 2020.

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