Ford sells $1.25bn of debt as yields plummet

Ford Motor Co, last year’s biggest issuer of high-yield corporate debt, sold $1.25bn in seven-year notes a day after yields on its similar-maturity company debt fell to the lowest on record.

The second-largest US automaker issued the 6.625 per cent notes at a yield of 6.9 per cent through its Ford Motor Credit Co unit, according to data compiled by Bloomberg.

Ford sold the securities less than a week after reporting its biggest first-half profit in 12 years and debt reductions aimed at restoring the investment-grade ratings it lost in 2005. The Dearborn, Michigan-based company raised the debt as yields on speculative-grade bonds fell to the lowest in more than two months, according to Bank of America Merrill Lynch index data.

“They’ve been very smart about when they issue,” said Kathleen Gaffney, co-manager of the $18.6bn Loomis Sayles Bond Fund, which has outperformed 96 percent of its peers in the last year, according to data compiled by Bloomberg. “They’re showing really high-quality management there.”

Yields on Ford’s $1.5bn of 8 per cent notes due in 2016 fell yesterday to 6.56 per cent, the lowest since they were issued in 2006, as the price rose to 107.375 cents on the dollar, according to Trace, the bond price reporting system of the Financial Industry Regulatory Authority.

The bonds fell 0.375 cent to 107 cents on the dollar to yield 6.63 per cent, or 4.9 percentage points more than similar- maturity Treasuries, as of 2:09 pm in New York, Trace data show. Yields have fallen from about 28 per cent in October 2008.

Moody’s Investors Service rates Ford Motor Credit’s unsecured debt Ba3 and Standard & Poor’s grades the company three steps lower at B-.

Ford, which earned $4.7bn in the year’s first six months, its largest first-half profit since 1998, said July 23 it planned to regain its investment-grade rankings.

The only major US automaker to avoid bankruptcy last year has been gaining market share in the US with redesigned models such as the Fusion and Taurus sedans. Ford controlled 17.5 per cent of the US auto market in the first half, up from 16.1 per cent last year, according to researcher Autodata of Woodcliff Lake, New Jersey.

High-yield, high-risk bonds are rated below Baa3 by Moody’s and BBB- by S&P. Yields on the debt fell to 8.543 yesterday, the lowest since May 5, when they were 8.45 per cent, Bank of America Merrill Lynch index data show.

Bank of America Corp, BNP Paribas, Citigroup Inc. and Goldman Sachs Group Inc managed the sale, Ford said in a prospectus filed with the Securities and Exchange Commission that didn’t specify the size or timing of the offering.

Ford Motor Credit plans to sell $4bn to $6bn in unsecured debt this year, the company said on July 23. It last tapped the corporate bond market in April, when it sold $1.75bn of five-year, 7 percent notes, and has sold $4.5bn including today’s sale, according to data compiled by Bloomberg. It issued $4.6bn of bonds last year, Bloomberg data show.