Ford puts revenue gained from green bonds into its EV development and other ecological projects

Ford continues pursuing the previously chosen course of developing its own line of electrical vehicles, with an initial release of two million vehicles being planned on 2026. The company is planning to spend $50 billion to support this area of production, which is an important element of its “green” strategy. According to the information received from a source close to the company, all current and planned ecological projects of Ford are about to be funded with the revenue from selling debt bonds.

An important step in this direction was made by Ford at the end of 2021, when a large amount of high-yield bonds, also known as junk bonds, was purchased to support and strengthen the company’s positions, which had been weakened after the events of April 2020 and the following production cuts. That purchase was valued at $5 billion.

Soon after that, according to Bloomberg, the company issued the first part of its green bonds last year with the total value of $2.5 billion.

As specified by the mentioned source familiar with the situation, a new issuance of debt with the expected maturation in ten years was recently performed by Ford with the total sum of $1.75 billion, which became the first green sale of this summer.

The issued bonds received a preliminary BB+ rating combined with a positive outlook. Despite some possible challenges connected with the inflation pressure and other factors, it’s expected to see increasing profitability of Ford, as the company manages to take advantage of current circumstances by active modernization and a determination to fulfill its Ford+ plan.

According to a person familiar with the matter, the return on security might reach 6.1% after the initial price discussion at around 6,375%. Such return is comparable to an average return of 5.97% typical for the BB rated bonds.

Ford is planning to channel the revenue gained from green bond issuing on supporting and launching of its ecological projects, with the main priority being the development of its own electrical vehicles. According to the source, the net profit from the recent deal is going to be fully distributed during the following year and a half.

Concerning the general situation on the junk bond market, there has recently been noticed some agitation in said segment, which is linked to a decline in profitability as a result of market rally. It’s considered that by this the emitters have been allured into selling bonds. Joel Levington from Bloomberg Intelligence has commented on the situation, stating a possibility for Ford to enter the bond market before the June stage of debt maturities. He has also noted the uprising credit ratings of the company, which indicate that there’s a possibility to return to the previous investing levels by 2023. Free cashflows demonstrating stability and the volume of production are of great interest for credit rating agencies, which are now assessing possible forthcoming conditions in financial and economic spheres.