Its investment-grade rating has been revoked. Ford’s credit rating was downgraded to BB+, one notch below investment-grade, by Standard & Poor’s, citing fears that the closure of its North American facilities will affect the company’s profitability and cash flow for a long time.
Is Ford a bad investment?
Ford plans to slash its borrowing costs by more than half by repurchasing $5 billion in junk-rated debt and establishing a path to investment-grade status.
In a statement released on Thursday, the automaker said it will launch a $5 billion cash tender offer to repurchase a major portion of the $8 billion in junk bonds it issued to shore up its balance sheet as it prepares to shut down operations when the pandemic strikes in April 2020. As auto sales plummeted, Ford issued “COVID bonds” a month after becoming the largest fallen angel when S&P Global Ratings downgraded its debt to non-investment grade.
Ford is flexing new financial power to decrease its borrowing rates and strengthen its balance sheet while it invests $30 billion to develop and construct electric vehicles, due to new products like the electric Mustang Mach-E and the reborn Bronco SUV.
Ford expects its interest rate to reduce to around 3.5 percent to 4% in the future, compared to COVID bond coupons ranging from 8.5 percent to 9.625 percent. The tender offer will be funded using cash on the balance sheet, with certain other high-interest legacy debt being targeted as well.
According to a news release, Ford expects to incur a charge of between $1 billion and $1.2 billion to complete the tender, depending on which bonds are repurchased. The charge will primarily come from pulling ahead interest commitments. The tender’s final deadline is Dec. 3, but an early deadline with better terms for investors is Nov. 18 at 5 p.m. in New York time.
Ford also announced it expects to issue a $1 billion green bond with a 10-year maturity later this year, with the money going toward a push toward electrification and new battery electric vehicles. The move is part of a new long-term finance plan centered on environmental and social objectives, which was also unveiled on Thursday.
“This significantly reduces the cost of our debt,” said John Lawler, chief financial officer, in an interview. “Not only does it provide us with more financial flexibility in terms of lower interest expenditure, but it also strengthens our balance sheet, which is beneficial as we try to return to investment grade.”
Ford has reintroduced its dividend, which it had reduced in early 2020, and its stock has soared to its highest level since January 2011.
“Now is the time to proactively reorganize the balance sheet, cut our interest expenses, and really clear the decks for 2022 and beyond,” Ford Treasurer Dave Webb told reporters on a conference call.
Ford said it is the first U.S. automaker to commit to a sustainable financing strategy for both its auto and lending unit, Ford Credit, as it prepares to launch an electric version of its top-selling F-150 pickup next year. The strategy entails committing to zero-emission vehicles made in clean factories, as well as offering economic access to underprivileged groups, such as car loans, and investing in disadvantaged communities, such as rehabilitating Detroit’s century-old Michigan Central Depot.
Other environmental, social, and governance investing initiatives have been chastised for lacking teeth or having insufficient impact. Ford claims that the billions it is spending to build 1 million electrified vehicles per year by mid-decade proves its commitment.
Ford pledged to reduce CO2 emissions from its vehicles in Europe in September, linking its revolving credit facilities to measures including reducing greenhouse gas emissions and increasing renewable electricity consumption at production plants. Depending on whether Ford accomplishes or misses these goals, it will earn a discount or see an increase in the cost of its borrowing.
“By directing our capital to what’s good for people, good for the planet, and what’s good for Ford, we’re putting our money where our mouth is,” Lawler added.
Moody’s Investors Service has the company rated two steps into junk, while S&P Global Ratings and Fitch Ratings have it rated one step into junk. In March, Ford issued a $2 billion zero-percent convertible bond, with the proceeds to be used for general company objectives, including debt repayment.
“We have no influence over what the rating agencies do,” Lawler explained. “However, we feel that if we continue to improve the business and strengthen our balance sheet, they will change their minds and raise our ratings.”
Is it wise to put money into Ford?
I’m not here to argue that Ford is more innovative or has a better growth rate than Tesla, because I don’t think that’s true. What I’m saying is that the distance between them isn’t as wide as some people make it out to be, which is critical when considering valuations.
Analysts predict that Tesla’s earnings per share (EPS) will be at $6.29 in 2021, and that its EPS will grow at a 38 percent annualized pace over the next three to five years. The stock’s current price-to-earnings ratio is 163.
Is Ford’s debt investment-grade?
Ford Motor Co. F,-0.51 percent climbed 1.4 percent in morning trade Thursday after S&P Global Ratings upgraded the automaker’s credit rating from negative to positive, noting “positives” such as continuous cost-cutting efforts, favorable product pricing, and lower inventories. The positive outlook means a “increased chance” of a rating upgrade within the next 12 to 18 months, according to S&P. Ford’s credit is now rated BB+, the highest speculative grade, or “junk” rating, thus an upgrade would bring the credit up to investment-grade level. In comparison, rival General Motors Co.’s GM,-0.88 percent S&P 500 credit rating is BBB, which is two notches above “junk” status and has a negative outlook. He believes the benefits will be able to offset a big percentage of the risk of raw material inflation. “Ford’s management team has made significant progress in addressing key operational concerns, and recent large investments in electrification have sufficiently positioned the company for the future,” S&P added. Year to date, Ford’s stock has risen 129.2 percent, while GM’s stock has risen 55.4 percent and the S&P 500 SPX,-0.38 percent has risen 25.0 percent.
Is Ford’s debt a major issue?
‘Volatility is far from synonymous with risk,’ Warren Buffett famously said. It’s only logical to look at a firm’s balance sheet when determining how hazardous it is, because debt is frequently involved when a company fails. Ford Motor Company (NYSE:F), like many other companies, uses debt. Should shareholders, however, be concerned about the company’s debt use?
When Is Debt Dangerous?
Debt aids a firm until it has difficulty repaying it, either with new capital or free cash flow. The process of ‘creative destruction,’ in which bankrupt enterprises are cruelly liquidated by their lenders, is an integral part of capitalism. However, a more common (but still costly) situation is when a corporation is forced to issue shares at rock-bottom prices, permanently diluting shareholders, in order to shore up its balance sheet. Debt, on the other hand, can be a very good tool for firms that require funds to invest in growth at high rates of return by substituting dilution. When we look at debt levels, we look at both cash and debt levels at the same time.
What Is Ford Motor’s Net Debt?
The picture below, which you can click to enlarge, reveals that Ford Motor Company had debt of US$144.6 billion at the end of September 2021, down from US$157.3 billion a year earlier. It did, however, have US$31.4 billion in cash, bringing its net debt to US$113.2 billion.
How Strong Is Ford Motor’s Balance Sheet?
Zooming in on the most recent balance sheet data, we can see that Ford Motor has US$89.0 billion in obligations due within the next 12 months and US$126.9 billion in liabilities due after that. It has US$31.4 billion in cash and US$4.04 billion in receivables due in the next 12 months to offset this. As a result, it has greater liabilities than cash and short-term receivables combined, totaling US$180.5 billion.
Can I invest in Ford bonds?
A 10-year bond issued by Ford Motor Company with a 7% annual interest rate is an example. Ford repays you the $1,000 you lent it after ten years (the bond’s “maturity”). Purchasing Bonds Bonds can be bought (and sold) directly through brokers, but most consumers put their money into bond funds.
How much money does Ford owe?
In 2021, Ford Motor Company reported a total debt of roughly 138 billion dollars. Automobile debt, credit debt, and other debt make up total debt.
Is Ford stock a sound long-term bet?
Final Thoughts F stock is a superb choice for long-term investors, because to its multiple, robust, favorable catalysts and inexpensive valuation.
Why are Ford’s stock prices so low?
Ford Motor Company (NYSE:F) shares began down on Monday, as part of a broader market sell-off fueled by worries about increasing interest rates. Ford’s stock was down roughly 4.7 percent from Friday’s closing price at 10:30 a.m. ET.
Is Ford’s stock too expensive?
After a year of significant share price outperformance, Ford stock appears to be overvalued.
Despite the fact that F’s ahead Return on Assets or ROAs are among the lowest in the peer group provided below, the company’s forward P/E multiples are among the highest among its peers. While Ford’s predicted revenue growth rates are higher than those of most of its competitors, this appears to have already been factored into its stock prices.
What is Ford’s debt to the government in 2021?
Ford announced on Friday that it had requested and received permission from the US Department of Energy to delay debt payments for a 2009 government loan.
According to a bankruptcy specialist who follows bankruptcy patterns closely, the action is “worrisome.”
Ford owes $591 million in 2020, $591 million in 2021, and $289 million in 2022, according to regulatory records filed by the firm.
“The idea that Ford Motor Company, a multibillion-dollar corporation, needs to defer loan payments of that magnitude would be a troubling message to their investors,” said Charles Elson, director of the University of Delaware’s Weinberg Center for Corporate Governance.
“They’re definitely trying to save money, but why for such a small amount for such a large corporation? You must inquire as to why “he stated
Ford said that in June it changed the terms of the government loan, reducing quarterly payments on the principle due from $148 million to $37 million. Ford also acknowledged that $1.26 billion is still owed on the principal, and that deferring the payment will result in additional expenditures such as interest and a higher interest rate.