Ford Sells $2.5 Billion of Convertible Notes (Update1)
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Nov. 4 (Bloomberg) -- Ford Motor Co., the only major U.S. automaker to avoid bankruptcy, sold $2.5 billion of convertible notes, 25 percent more than planned, in the largest offering of the debt this year.
Convertible bonds have returned 36.7 percent this year, rebounding from a 33 percent loss in 2008, the worst performance for the securities since at least 1988, according to Merrill Lynch & Co.’s All Convertibles index.
Ford is taking advantage of the improving market for convertibles to reduce debt, said Bill Feingold, co-founder of Hillside Advisors LLC, which advises clients on investing in the securities. The company will pay the same conversion premium on the notes as in its last offering of similar debt almost three years ago, according to data compiled by Bloomberg.
“If you can raise money now in almost identical terms to what you raised three years ago, you should probably be doing it,” Feingold, who is based in Valhalla, New York, said yesterday in a telephone interview. “They’re raising money when they can, not when they have to, and to me that’s a sign of a well-run company.”
Ford will pay a 4.25 percent coupon on the senior notes due in 2016, the Dearborn, Michigan-based automaker said in a statement posted on its Web site. The notes, which cannot be called for the first five years, may be converted to common stock or cash at maturity. The conversion premium is 25 percent higher than the closing price of Ford shares yesterday.
Bigger Greenshoe
The automaker initially planned to sell $2 billion of convertible notes. The total offering size may reach $2.875 billion if underwriters exercise a so-called over-allotment option, or greenshoe, according to the statement. Ford said the greenshoe was increased to $375 million from $300 million.
“This was a successful transaction and the results exceeded our expectations,” Lewis Booth, Ford’s executive vice president and chief financial officer, said in the statement.
In the December 2006 offering, Ford issued $4.5 billion of 4.25 percent bonds with a 25 percent conversion premium, Bloomberg data show. The notes, which mature in 2036 and can be called in 2016, rallied to 103.25 cents on the dollar as of yesterday from 26 cents on Jan. 2, according to Trace, the bond- price reporting system of the Financial Industry Regulatory Authority.
Positive Cash Flow
Ford, which lost $30 billion from 2006 through 2008, said Nov. 2 it had positive cash flow of $1.3 billion in the third quarter, its first positive cash-flow quarter since 2007. The third quarter’s $1.1 billion pretax profit was the first since the initial quarter of 2008, Ford said.
Ford shares fell 14 cents, or 1.85 percent, to $7.44 yesterday in New York Stock Exchange composite trading. They declined to $7.34 at 8:23 a.m. today before U.S. markets opened. The stock closed last year at $2.29.
The automaker will also offer as much as $1 billion in common shares through broker-dealers in December.
When a company raises equity through a convertible, “people tend to focus on the dilution it causes,” Feingold said. “This is going to give the company, however, much more time, if you want to bet on the upside, before they have to go back and figure out where some more money’s going to come from.”
Ford arranged $23.4 billion of debt in late 2006, including a five-year, $11.5 billion bank line, giving it more cash than rivals General Motors Co. or Chrysler Group LLC. To obtain the financing, Ford had to put up all major assets including its blue oval logo as collateral.
Credit Line
Ford said this week it’s raising as much as $3.3 billion, while paying down a portion of a $10.7 billion line of credit to strengthen its balance sheet. The company is seeking to repay 25 percent of the revolver and push out the maturity of the remaining $8 billion liability by two years to 2013.
“Ford has developed a knack for approaching the capital markets at exactly the right time with the right deal,” Shelly Lombard, a senior high-yield analyst at New York-based Gimme Credit LLC, wrote in a report yesterday.
Ford’s offering surpasses Intel Corp.’s $2 billion sale in July of 3.25 percent convertible notes due in 2039 as the largest convertible bond offering of 2009, Bloomberg data show. Intel, the world’s biggest computer-chip maker, is based in Santa Clara, California.
Companies have sold $25.1 billion of equity-linked securities this year, compared with $61.1 billion in all of last year and $95.3 billion in 2007, the data show.
