The coronavirus outbreak has caused a plunge in vehicle sales and production, which, according to the estimates by Ford Motor Co, will result in a loss of about $2 billion for the first quarter. This has strained the cash reserves of the company prompting it to raise $8 billion from corporate debt investors to augment its depleting cash reserves, the company said on Friday.
According to a regulatory filing, new funds with a three-part debt offering was raised by the Dearborn, Michigan-based company which was stripped off its investment-grade status in March.
According to a report by International Financing Review, the move by the US Federal Reserve last week to backstop debt offerings by companies that were stripped of their investment-grade credit ratings after the novel coronavirus crisis spread quickly across the US, has benefited Ford, investors said.
“Today’s deal is a good sign of the growing confidence around the improving market backdrop with respect to liquidity as well as more promising views around the economic outlook,” said Dan Mead, head of investment grade syndicate at Bank of America Securities, which was one of the lead banks on the Ford deal.
The new debt securities by Ford offer investors a return of between 8.50 per cent and 9.625 per cent compared to the interest rates of close to zero for cash savings in banks. ,
According to reports, across the three debt packages, there is a about $40 billion worth of demand from investors. In order to cushion itself from the coronavirus hit, more than $15 billion from revolving credit lines had been drawn earlier by Ford. The pandemic in the United States and Europe has forced the company to pull down shutter temporarily of its North American and European factories during the past month.
General Motors Co had entered into a 364-day revolving credit agreement of $1.95 billion, the company disclosed in a separate regulatory filing. The credit line had been allocated to be used exclusively by its financial services business, the automaker said.
Additional guarantees for earlier loans had to be put up by Ford for its earlier loans, the company said on Friday since it has not been able to hold on to its investment-grade status. No additional security was required for the notes sold by the company on Friday. The company has also suspended its dividend for the quarter.
In the months ahead, it will be critical for Ford to stopping the draining of cash as well as to restart profitable operations in Europe and North America. There was enough cash with the company to last to the end of the third quarter, the company told investors ahead of Friday’s bond deal.
Currently, production for the company has only started in China where it partners with a local company as the coronavirus pandemic has subsided in the country and the government has allowed easing of the strict travel restrictions.
(Adapted from Reuters.com)