Ford Bets On Its Own Future With Unusual Bond Deal
39 minutes agoDow Jones
By Kellie Geressy-Nilsen and Anusha Shrivastava
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Ford Motor Credit Co. (F) was offering a $1.5 billion five-year asset-backed bond Tuesday that will convert to senior unsecured debt if two of three credit firms raise the auto maker's rating to investment grade, an unusual structure that investors interpreted as a sign of Ford's confidence in its near-term future.
"Ford is a good credit story and this structure gives them some flexibility," said Paul Norris, head of structured products at Dwight Asset Management Co. in Burlington, Vt., which is looking to bid for the deal. "This is a new kind of funding for them and because they have done a good job of managing their balance sheet, demand for a $1 billion deal is $6 billion."
The deal was increased in size from $1 billion, a sign of robust investor appetite.
Ford was the only U.S. auto maker to avoid bankruptcy and overtook General Motors last month as the country's best-selling car maker. Ford was the top issuer of asset-backed bonds last year.
The latest issue, the Ford Upgrade Exchange Linked Notes, is being sold via the FUEL Trust 2011-1, according to an offering document.
As suggested by the name, the issue features an upgrade and exchange. As issued, the so-called FUEL notes will be investment-grade asset-backed securities. However, if any two of the three major ratings firms--Moody's Investors Service, Standard & Poor's and Fitch Ratings--raise Ford Motor Credit's senior unsecured credit rating to investment grade, the FUEL notes must be exchanged into Ford Motor Credit senior unsecured notes, keeping the identical maturity and coupon of the original FUEL issue.
S&P rates Ford's unsecured debt BB-minus, three notches below investment grade. Fitch rates the auto maker's unsecured debt one notch higher, at BB. Moody's rates the unsecured debt Ba2.
"It's basically investment-grade debt given it's backed by prime auto receivables," Norris said. "They are trying to be creative and get to new participants. This is a cross-over type of deal so both investors in corporates and securitized products could be interested in buying the deal, hence so much interest in it."
The $1.5 billion noncallable issue is to be sold in the private placement Rule 144a market, which is aimed at institutional investors, via joint bookrunners Citigroup, Bank of America Merrill Lynch and Goldman Sachs.
The deal has launched at a risk premium of 200 basis points over Treasurys. Price guidance was 210 basis points over Treasurys.
"We think they are priced attractively," Norris said. "People are going to jump all over it."
The underlying collateral for the notes is Ford Credit Auto Owner Trust 2011-SRR1's note issue. That deal is a securitization of a revolving pool of car, light truck and utility vehicle receivables purchased by Ford Credit from dealers and is rated BBB- by S&P.
The FUEL deal has been rated Baa2 by Moody's Investors Service and BBB- by Standard & Poor's.
Margaret Mellott, a Ford spokeswoman, declined to comment.
-By Anusha Shrivastava, Dow Jones Newswires; 212-416-2227; anusha.shrivastava@dowjones.com
04-12-11 1442ET
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