December 2, 2021

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Ford Offers to Buy Back Bonds as It Works to Overhaul Balance Sheet

Ford

Motor Co. on Thursday said it would buy back up to $5 billion in high-priced debt, a move that comes as finance chief

John Lawler

works to overhaul the car maker’s balance sheet and improve its credit rating.

Ford’s tender offer is for 10 different debt instruments including securities with a 9% coupon due in April 2025 and those with a 9.625% coupon due in April 2030. The company in April 2020 sold $8 billion of bonds as a financial cushion as the coronavirus pandemic forced Ford’s factories to close temporarily and dented sales. Ford also eliminated its dividend at the time.

Buying back the debt with cash from its operations would help the auto manufacturer bring down its interest costs and reduce its debt levels. Ford said it expects to incur a charge in the range of $1 billion to $1.2 billion depending on which securities are bought back.

John Lawler was named Ford CFO last year.



Photo:

Ford Motor Co/Zuma Press

“We can have the flexibility now to rework our debt structure,” Mr. Lawler said, adding that Ford expects the tender offer to have a significant impact on its cost of debt. “We are continuing to look at how we strengthen the balance sheet…with the idea that it’s going to provide us increased financial flexibility as well as it’s part of returning our credit rating back to investment grade,” he said.

Ford’s senior unsecured debt is rated Ba2 by Moody’s, which is two notches below investment-grade status. S&P Global Ratings rates some of the company’s debt as BB+, which is one notch below investment-grade status, with a negative outlook.

Ford and its financing subsidiary Ford Motor Credit Co. on Thursday also launched a sustainable-financing framework that will serve as the basis for issuances of both secured and unsecured financing tools, including bonds tied to the company’s environmental, social and governance goals like clean transportation and clean manufacturing. The auto maker said it wants to be carbon neutral no later than 2050.

“You could potentially see a green bond issuance, which we believe will be healthy for the company and…improve our balance sheet, lower our debt, and lower the cost of our debt considerably,” Mr. Lawler said.

The company earlier this year sold a 0% convertible bond, taking advantage of the increase in its share price since the beginning of the year. Its stock price—at $19.38 in recent trading—has more than doubled since early January.

Ford last month said it would reinstate its dividend in the fourth quarter, pledging to distribute 10 cents a share as of Dec. 1.

Thursday’s tender offer “is a very strong signal, in addition to the reinstated dividend, that the balance sheet is being repaired fast,” said Philippe Houchois, a managing director at investment bank Jefferies Group.

Extinguishing its higher-priced debt could provide Ford with about $455 million in additional pretax income a year, said

David Whiston,

an equity analyst at Morningstar Research Services LLC.

“I like them deploying their cash hoard to take out a decent part of their most expensive bonds,” Mr. Whiston said. “It’s a good use of cash right now, and with the dividend coming back they can do it without being criticized for not resuming the payout.”

The number of semiconductors in a modern car, from the ignition to the braking system, can exceed a thousand. As the global chip shortage drags on, car makers from General Motors to Tesla find themselves forced to adjust production and rethink the entire supply chain. Illustration/Video: Sharon Shi

Write to Nina Trentmann at [email protected]

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Appeared in the November 5, 2021, print edition as ‘Ford Continues Effort To Improve Finances.’

https://www.wsj.com/articles/ford-offers-to-buy-back-bonds-as-it-works-to-overhaul-balance-sheet-11636054591