Ford to repurchase as much as $5 billion in junk bonds because it restructures its steadiness sheet

DETROIT – Ford Motor plans to repurchase as much as $5 billion of its high-yield bonds as a part of a wider plan to restructure its steadiness sheet that grew to become extra bloated with emergency borrowings when automakers needed to shutter operations final 12 months.

Ford is shopping for again a lot of the $8 billion in bonds the corporate issued in the beginning the coronavirus pandemic at lofty yields of between 8.5% and 9.625%, in accordance with Ford Treasurer Dave Webb. It is also repurchasing some older bonds at equally excessive yields in hopes of upgrading its credit standing, which misplaced its investment-grade standing in March 2020.

Ford expects to fund the buyback with money readily available, which totaled about $31 billion to finish the third quarter. Webb stated a $1 billion or extra “inexperienced” bond may comply with as a part of a wider effort to “aggressively restructure” its steadiness sheet below its Ford+ turnaround plan. He stated the corporate is trying to difficulty 10-year bonds that pay between 3.5% and 4.5%.

“We expect it is the time to aggressively restructure the steadiness sheet, decrease our curiosity prices, and actually clear the decks for 2022 and past. That is actually what we’re trying to accomplish right here,” Webb instructed reporters throughout a name.

The repurchase was introduced as a part of Ford’s new “sustainable financing framework,” which the automaker is asking a primary of its variety for the North American automotive trade. It is going to concentrate on car electrification and different environmental and social areas reminiscent of clear manufacturing and group revitalization.

It is a shift for Ford, together with its Ford Credit score monetary subsidiary, as environmental, social and governance, or ESG, investing turns into extra well-liked and a consideration of traders.

The bond repurchase and new framework are geared toward serving to to finance the Ford+ plan, together with investing tens of billions of {dollars} into electrical and autonomous car applied sciences.

Webb declined to take a position on when the automaker expects to return to funding grade. He stated the corporate is “intense on getting there as shortly as we probably can.”

“The actions that we’re taking right here on the steadiness sheet additional help that effort and intent. We expect they, actually, needs to be seen as a credit score constructive,” Webb stated.