CEO Mulally turns to China for financial assistance.
Ford Motor Co. is trying something new to bolster operations in China. To help support the company’s strategy in China, Ford has announced it’s selling renminbi (RMB)-denominated bonds for the first time. The issue was aimed at investors in Hong Kong, Singapore and elsewhere outside the United States, with total proceeds of $158 million.
“We are pleased with this transaction and appreciate the actions taken by regulators in China that have opened the RMB capital markets for global issuers like Ford,” said Neil Schloss, Ford vice president and treasurer. “This offering was an opportunity for Ford to fund business operations in China while expanding our global investor base.”
Ford was late to the Chinese market, especially when compared to key competitors such as General Motors and Volkswagen, which now dominate that booming market. Its challenge is to establish a niche in the market – with the maker putting an emphasis on regions of China just beginning to share the economic boom first seen along the Pacific Coast.
Meanwhile, Ford has succeeded in negotiating a new line of credit in the U.S. on what it says are more favorable terms. Ford went heavily into debt as the recent economic downturn began – a savvy move in hindsight considering what happened to its cash-starved Detroit rivals. But it is now trying to improve its balance sheet without the benefits that GM and Chrysler got through bankruptcy.
The amendment and extension of the revolving line of credit includes a lower interest rate and totals of $9 billion in accessible funds through 2015, which underscores the company’s overall financial strength and financial flexibility, Ford officials said.
“We are very pleased with the results of the amendment and extension transaction, which was significantly oversubscribed,” Schloss said. “This support from our global banking partners represents an important source of committed liquidity and financial flexibility for Ford,” he added.
Prior to the amendment, lenders had commitments under the revolving credit facility totaling $8.9 billion that were scheduled to mature on Nov. 30, 2013, of which approximately $130 million was utilized for letters of credit.
As of March 15, revolving lenders have a total of $9 billion of commitments that are scheduled to mature on Nov. 30, 2015, and approximately $300 million of commitments that are scheduled to mature on Nov. 30, 2013. The facility is unused, with the exception of approximately $130 million utilized for letters of credit.
Secure credit lines have been critical to Ford’s comeback and were instrumental in keeping the company out of bankruptcy in 2008 and 2009 when a recession forced rivals General Motors and Chrysler Group to seek court protection under Chapter 11 of the Federal Bankruptcy Code.
Extending Ford’s credit facility further enhances the company’s liquidity and financial flexibility, Schloss said. In addition, the action is consistent with Ford’s goal of financing the One Ford plan and improving the balance sheet.
The collateral pledged to the lenders under the revolving credit facility will be released when Ford’s senior long-term, unsecured debt receives investment grade ratings from at least two of the three major rating agencies, Ford said in a statement.
Ford executives have been pressing rating agencies such as S&P and Moody’s for an upgrade rating for nearly one year, but so far the various organizations have held off on the investment grade that Ford CEO Alan Mulally covets.
In addition to the increase in the total amount of commitments and extending the maturity date, revolving lenders approved certain modifications to the revolving credit facility, including the elimination of the limitation on debt prepayments and dividends upon the release of collateral.