Ford Motor Company (NYSE:F) is said to buy back about $5 billion of its high-yield bonds in a move to restructure its balance sheet, which ballooned with emergency borrowings when car manufacturers were forced to shut down operations in 2020.
Q3 2021 hedge fund letters, conferences and more
Bond Buyback
As reported by CNBC, Ford is repurchasing most of the $8 billion in bonds the firm issued at the onset of the Covid pandemic at lofty yields of between 8.5% and 9.625%.
Ford Treasurer Dave Webb said the automotive giant is also buying back older bonds at similarly high yields to improve its credit rating and take it back to the investment-grade status it lost in March last year.
“Ford expects to fund the buyback with cash on hand, which totaled about $31 billion to end the third quarter. Webb said a $1 billion or more ‘green’ bond could follow as part of a wider effort to ‘aggressively restructure’ its balance sheet under its Ford+ turnaround plan. He said the company is looking to issue 10-year bonds that pay between 3.5% and 4.5%,” CNBC asserts.
During a call, Webb told reporters: “We think it’s the time to aggressively restructure the balance sheet, lower our interest costs, and really clear the decks for 2022 and beyond. That’s really what we’re looking to accomplish here.”
The buyback stems from Ford’s new “sustainable financing framework,” deemed by the automaker itself as a one-off in the North American car manufacturing business. The framework will center around the electrification of its models plus additional environmental areas.
Investing In EVs
It’s time to deleverage our balance sheet, reduce our interest expense going forward, and we think it’s another good step [back] towards investment grades,” Ford’s CFO John Lawler said.
Lawler emphasized Ford is going to invest “whatever it takes” to drive the growth of electric vehicle initiatives: “If we need to invest more because we have growth opportunities and it will give us a great return, we’ll do that.”
The company revealed it will invest $30 billion in electric and autonomous vehicles, as $15 billion corresponds to capital expenditures the company announced.
“The actions that we’re taking here on the balance sheet further support that effort and intent. We think they, certainly, should be viewed as a credit positive,” Webb said.
Ford is part of the Entrepreneur Index, which tracks 60 of the largest publicly traded companies managed by their founders or their founders’ families.
