After declaring a $2 billion loss in the first quarter due to factory closures due to the coronavirus epidemic, the company stated it has issued three series of high-yield bonds, raising a total of $8 billion.
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 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.
What is the bond rating of Ford?
Moody’s has given Ford’s senior unsecured debt a Ba2 rating, which is two notches below investment-grade. S&P Global Ratings assigns a negative outlook to some of the company’s debt, which is rated BB+, one notch below investment-grade.
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.
Is Ford stock being repurchased?
DETROIT, MI Ford Motor Company aims to repurchase up to $5 billion in high-yield bonds as part of a larger strategy to reorganize its balance sheet, which has become bloated due to emergency borrowings since automakers were forced to stop operations last year.
According to Ford Treasurer Dave Webb, the firm is buying back much of the $8 billion in bonds it issued at the onset of the coronavirus pandemic at high yields of between 8.5 percent and 9.625 percent. It’s also repurchasing some older notes with comparable high returns in the hopes of regaining its investment-grade credit rating, which it lost in March 2020.
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.
What makes Ford so bad?
Ford Motor Co. was demoted to junk status by Standard & Poor’s Financial Services LLC on Wednesday as the coronavirus pandemic decreases demand for new automobiles.
Ford’s credit rating was downgraded from “BBB-” to “BB+,” putting it in the non-investment grade category. Ford’s unsecured debt received the same rating from the agency. The Blue Oval announced last week that it would borrow $15.4 billion in order to maintain financial flexibility as it closes factories in North America, Europe, and South America. This is the company’s second downgrading this week.
S&P analyst Lawrence Orlowski noted, “The coronavirus has caused supply-side and demand-side shocks to light-vehicle demand.” “The decision to downgrade Ford Motor Co. investment grade to speculative grade reflects that the company’s credit metrics and competitive position had crossed the line into investment-grade territory prior to the coronavirus outbreak, and the expected drop in light-vehicle demand made it unlikely that Ford would maintain the required metrics.”
Ford’s handling of diminishing demand in terms of factory closures, how quickly it burns through cash, and the company’s liquidity position will be monitored over the next 90 days, according to the agency. With a negative outlook, S&P has a 50% likelihood of downgrading the credit rating.
After closing up 8.9%, Ford’s stock was down 1.3 percent in post-market trade. Ford was downgraded to one notch above junk status by Fitch Ratings on Monday. It also expressed fear that the virus epidemic could result in lengthy outages.
Ford reiterated its Monday statement that it does not comment on particular actions but is handling the health crisis and ensuring the safety of its business, employees, and customers.
The Dearborn carmaker stated, “We plan to emerge from this crisis as a stronger firm that is a driver for economic development in all of the areas we serve.” “We have maintained a robust balance sheet and adequate cash to weather economic uncertainties and continue to invest in our future, and we remain dedicated to investment-grade credit ratings in the long run.”
Is Ford a bad investment?
The debt of Ford Motor Company was downgraded after the market closed on Wednesday. It is now labeled junk, or speculative-grade debt as it is known on Wall Street.
Among industry insiders, the phrase isn’t derogatory, but the junk rating has certain consequences for Ford’s future financing costs, which will inevitably affect the stock price. Ford (ticker: F) shares, on the other hand, were up 2.3 percent on Thursday afternoon.
Is Ford making good on its bailout?
Ford, Nissan, and Tesla are among the loan recipients of a scheme with stringent financial soundness standards. Nissan’s Tennessee operations were awarded $1.6 billion. Tesla received $465 million for its operations in California.
According to CNBC, both Tesla and Nissan had fully repaid their loans as of September 2017. Ford had not done so.
Ford will be burdened by the debt plus interest as cash supplies dwindle.
“A total of $1.5 billion was outstanding as of December 31, 2019,” Ford said in its most recent 10-K filing with the Securities and Exchange Commission. “The ATVM loan is repayable in $148 million quarterly payments beginning in September 2012 and ending in June 2022.”
Ford owes $591 million in 2020, $591 million in 2021, and $289 million in 2022, according to documents filed by the corporation.
“They’ll have to figure out a means to pay, or else they’ll end up paying more for the privilege of borrowing,” said Charles Elson, director of the University of Delaware’s Weinberg Center for Corporate Governance. “It’s stuff like this that keeps folks awake at night. This is a problem that the management team is dealing with at 3 a.m.”