Ford taps green bond market for EV funding

Upward trajectory: A Ford dealership in Colma, California. As the American company turns its attention to electric vehicles and redesign activities, its profitability is on a path to improvement. — Bloomberg

NEW YORK: Ford Motor Co is taking advantage of a credit-market rally to sell green bonds.

The vehicle maker sold US$1.75bil (RM7.8bil) of debt expected to mature in 10 years, according to a person familiar with the matter.

The security will yield 6.1% after early pricing discussions of around 6.375%, the person said. That compares to an average yield of 5.97% for debt in the BB tier.

Fitch Ratings assigned the bond a preliminary BB+ rating with a positive outlook. Although the ratings firm expects supply chain and inflationary pressures to continue for the rest of the year, the company’s profitability is still on the path to improvement, as it “benefits from ongoing redesign activities, as well as execution on its Ford+ plan,” according to the note.

The Dearborn, Michigan-based company will use the proceeds to help finance new existing green projects, the person said.

Ford expects to allocate the net proceeds from this offering exclusively to clean transportation projects and specifically to the design, development and manufacture of its battery electric vehicle portfolio.

The company expects to fully allocate the net proceeds of this offering by the end of 2023, said the person.

This is the first junk-rated green sale since June 1 and Ford’s first green issuance since its US$2.5bil (RM11bil) debut green bond last year, according to data compiled by Bloomberg. The deal was led by Barclays Plc.

Ford’s new debt sale is part of the company’s overall green strategy, which includes spending US$50bil (RM223bil) to build two million electric vehicles a year by 2026. The company said it is the first United States automaker to commit to a sustainable financing strategy for both its auto and lending unit, Ford Credit.

Ford may tap the bond market before its next round of debt maturities in June, which could be a near-term consideration for bond spreads, according to Bloomberg Intelligence credit analyst Joel Levington.

There has been somewhat of a revival in junk-bond markets this week as a market rally pushes yields lower, drawing issuers off the sidelines to sell debt.

“Ford’s credit ratings are on an upward trajectory with a potential to cross back into investment grade in 2023,” Levington said.

“Credit rating agencies are looking for more consistent free cash flows and manufacturing operations, as well as considering where economic conditions will be next year.” — Bloomberg

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