US:Loan lifts demand for Ford bonds
Loan lifts demand for Ford bonds
BY MARK PITTMAN and BILL KOENIG
Demand for Ford Motor Co. bonds is increasing after the second-largest U.S. automaker said it's arranging a new loan to provide financing if the economy deteriorates.
Ford's $3.7 billion of 7.45% bonds due in 2031 have gained 5.9% since CEO Alan Mulally said in an Oct. 23 interview that a new credit line would give the company "the appropriate cushion" for "things like an economic slowdown." The company may have to pledge its factories as collateral to obtain the loan.
Mulally's announcement restored confidence shaken by his decision in September to scrap the sale of a stake in Ford Motor Credit Corp., the company's finance subsidiary. The gains in Ford bonds exceed the 2.4% advance in comparable notes sold by General Motors Corp. and the 0.9% average rise for debt with below-investment grade ratings, according to data compiled by Merrill Lynch & Co.
The loan "is a good idea because they've ensured their liquidity," said Margaret Patel, who manages $8 billion of below-investment grade securities as a senior vice president at Pioneer Investment Management in Boston.
Ford's 7.45% bonds trade at 79.125 cents on the dollar to yield 9.69%, according to Trace, the price reporting system of the NASD. The Dearborn-based automaker has $154.3 billion of debt. Its finance arm accounts for 87% of the borrowing.
The securities, which have returned 20.6% this year, yield 4.90 percentage points more than Treasuries with like maturities. Debt with similar ratings trades at an average yield premium of 3.26 percentage points, based on Merrill data.
Bonds rated below BBB- by Standard & Poor's and Baa3 by Moody's Investors Service are deemed non-investment grade.
Ford likely will seek a $4 billion to $5 billion secured line of credit in early 2007, said Kip Penniman Jr., of KDP Investment Advisors Inc..
My first car was a 67 Mustang Coupe, 2nd one was a 67 Cougar XR-7, 3rd one was a 66 Mustang Coupe. Why did I get rid of these cars for ? I know why, because I'm stupid, stupid, stupid.
My next Ford.....