| Bonds Online |
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| 5/10/2013Market Performance |
| Municipal Bonds |
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S&P National Bond Index
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3.00% |
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S&P California Bond Index
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2.96% |
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S&P New York Bond Index
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3.13% |
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S&P National 0-5 Year Municipal Bond Index
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0.70% |
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| S&P/BGCantor US Treasury Bond |
400.09 |
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| Income Equities: |
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| Preferred Stocks |
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S&P U.S. Preferred Stock Index
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848.03 |
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S&P U.S. Preferred Stock Index (CAD)
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636.26 |
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S&P U.S. Preferred Stock Index (TR)
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1,701.05 |
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S&P U.S. Preferred Stock Index (TR) (CAD)
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1,276.26 |
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| REITs |
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S&P REIT Index
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174.07 |
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S&P REIT Index (TR)
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425.30 |
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| MLPs |
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S&P MLP Index
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2,469.58 |
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S&P MLP Index (TR)
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5,428.50 |
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See Data
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Ford Investment-Grade Rating ‘Some Years Away’: Credit Markets |
By Shannon D. Harrington and Keith Naughton
March 24 (Bloomberg) -- Ford Motor Co., the biggest issuer of high-yield, high-risk securities, is “years away” from regaining the investment-grade rating it lost in 2005 even as growing U.S. market share and reduced debt lead to a surge in its bond prices, Chief Financial Officer Lewis Booth said.
“We’ve got a lot of steps to go before we get to investment grade,” Booth said today in an interview at Bloomberg’s headquarters in New York. “This is not a months issue. It’s some years away.”
While Ford bonds are trading as if they are two steps higher than their B3 rating from Moody’s Investors Service, the company’s $50 billion in debt was 13 times earnings before interest, taxes, depreciation and amortization in 2009. Ford is pegging its rebound to a “fragile” economic recovery, Booth said.
Ford, the only one of the three largest U.S. automakers to avoid filing for bankruptcy, was the biggest issuer of junk securities in 2009, selling $4.6 billion worth through Ford Motor Credit Co., according to data compiled by Bloomberg. The company’s standing with investors has been climbing since early 2009 as it cut $9.9 billion of debt through buybacks of term loans and bonds.
Dearborn, Michigan-based Ford’s $1.8 billion of 7.45 percent notes due in 2031, which traded at 15.4 cents on the dollar in November 2008, have soared to 93.3 cents, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The yield has plunged to 8.1 percent from 48 percent.
Wal-Mart Offering
Standard & Poor’s raised Ford’s credit rating in November to B-, six levels below investment grade. That came almost seven months after its previous upgrade. Moody’s boosted Ford on March 17, its third increase since September, and said it may lift it higher.
Elsewhere in credit markets, Wal-Mart Stores Inc., the world’s largest retailer, and Anheuser-Busch InBev NV, the biggest brewer, led about $10 billion of U.S. corporate bonds marketed or sold today. Pacific Investment Management Co. said corporate-bond buyers should upgrade the credit-quality of their investments as economic growth is hampered by higher government debt levels and the unwinding of stimulus programs.
Almost half of U.S. companies that defaulted last year had private-equity backers, which tend to use more leverage than other owners, according to Moody’s. Yields on Fannie Mae and Freddie Mac mortgage securities jumped the most in almost four months as rates on benchmark U.S. government notes soared following a
record-tying Treasury auction, signaling rising borrowing costs for new home loans.
Fitch Cuts Portugal
The cost to protect Portuguese sovereign debt using credit- default swaps rose after Fitch Ratings cut the government’s credit grade one step to AA- and placed it on a “negative” outlook because the nation’s prospects for economic recovery are weaker than 15 European Union peers.
Five-year contracts on Portugal climbed 4 basis points to 138 basis points, or $138,000 a year to cover securities with a face value of $10 million.
Portugal’s deficit is 9.3 percent of gross domestic product, more than triple the European Union’s 3 percent limit. Fitch’s downgrade puts it one step below the Aa2 rating assigned to it by Moody’s and a level higher than the A+ rating at Standard & Poor’s.
A benchmark indicator of U.S. corporate credit risk rose. The Markit CDX North America Investment Grade Index Series 14, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, climbed 2.6 basis points to a mid-price of 88.6, according to Markit Group Ltd. In London, the Markit iTraxx Europe Index Series 13, linked to swaps on 125 investment-grade companies, fell 1 basis point to 78.6, Markit data show.
Bondholder Protection
Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company or country fail to adhere to its debt agreements. A basis point on a contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year. An increase indicates deterioration in the perception of credit quality; a decline, the opposite.
Ford managed to avoid the fate of its U.S. rivals by borrowing $23 billion in late 2006 before credit markets froze. The automaker put up all major assets, including the Ford name, as collateral to build a cash cushion to withstand losses while developing new models.
Ford’s credit rating is being held back by a debt load that Moody’s calculates to be about $50 billion from its automotive operations, including a $12 billion unfunded pension liability and as much as $5 billion from leases on buildings and equipment, said Bruce Clark, Moody’s senior vice president in charge of rating Ford’s debt.
February Sales Leader
“We are talking years, not months before Ford would have the kind of credit metrics that would be reflective of an investment-grade rating,” Clark said in an interview. “Their credit metrics are still very weak despite their improving performance.”
Ford bonds are trading as if the company were rated B1 by Moody’s, according to the ratings company’s capital markets research group.
Ford ended three years of losses in 2009 with net income of $2.7 billion and forecasts a pretax operating profit this year. The company passed General Motors Co. in February to lead U.S. monthly auto sales for the first time since 1998.
Asset-Backed Securities
Ford has sold $2.8 billion in asset-backed securities tied to dealer payments this year through a Federal Reserve program to unlock lending. The Fed’s Term Asset-Backed Securities Loan Facility, or TALF, ended this month. A $1.5 billion bond issue backed by lease payments was sold outside of TALF in January.
“There are both internal and external headwinds which are going to keep them a solid high-yield credit at least for the next few years,” said Mirko Mikelic, senior money manager at Fifth Third Asset Management in Grand Rapids, Michigan, who helps manage $14 billion in fixed-income assets. “Slowly, if they get their house in order, they’re going to grind their way back to investment grade. But it’s not going to be anything easy or quick.”
High-yield, or junk, bonds are rated below Baa3 by Moody’s and lower than BBB- by S&P.
Ford was unchanged at $13.90 as of 4 p.m. in New York Stock Exchange composite trading. The shares have increased 39 percent this year, after rising more than fourfold in 2009.
‘Fragile’ Economic Recovery
“There are some hurdles ahead of us and the most obvious hurdle is, how fragile is the economic recovery?” Booth said. Ford is planning for a “modest recovery,” he said.
Ford forecast U.S. industrywide sales of 11.3 million to 12.3 million cars and light trucks this year, rising from 10.4 million in 2009, which was the lowest since 1982. The annual average from 2000 to 2007 was 16.8 million.
The company gained U.S. market share last year for the first time since 1995 with new models such as the revamped Taurus sedan while the predecessors of GM and Chrysler Group LLC reorganized in bankruptcy with federal aid. Ford also has trimmed 47 percent of its North American workforce since 2006 and is rolling out fuel-efficient small cars such as the Fiesta.
“We’re a changed company,” Booth said. “The test for Ford is to be consistent and predictable in our improvements.”
Dividend Unlikely
Ford is unlikely to restore the dividend soon on its common and preferred shares, Booth said. Ford last paid a dividend on its common stock on Sept. 1, 2006. It paid its last dividend on its Capital Trust II preferred stock Jan. 15, 2009, and said then it would defer payment for as much as five years.
“We still have huge demands on our cash,” Booth said. “I wouldn’t want to raise people’s expectations or hopes.”
Ford had a debt load of $34.3 billion in its auto operations at the end of last year, putting it at a competitive disadvantage with GM and Chrysler, which had their obligations reduced in bankruptcy, according to Booth.
Wal-Mart sold $2 billion of 5- and 30-year senior notes, tapping the U.S. bond market for the first time in eight months, Bloomberg data show. The notes due in 2040 yield 95 basis points more than similar-maturity Treasuries. In July, the Bentonville, Arkansas-based company issued $500 million of 6.2 percent notes due in 2038 in a reopening of an April 2008 offering. Those bonds paid a spread of 130 basis points.
Anheuser-Busch InBev sold $3.25 billion of debt in a four- part offering. Proceeds will be used to repay debt and for general corporate purposes. The Leuven, Belgium-based company was formed when InBev BV bought Anheuser-Busch Cos. for $52 billion in 2008.
Build America Bonds
Pimco recommends buying U.S. bank bonds, taxable municipal securities, federally subsidized Build America Bonds and emerging market corporate debt because the credit fundamentals “are stable and improving” in those areas, Mark Kiesel, global head of corporate bond portfolio management, wrote in a report posted today on the company’s Web site.
“Investors should take advantage of the tighter credit spreads and focus on de-risking their portfolios in order to prepare for the increasing long-term secular headwinds stemming from the growing deterioration in public sector balance sheets,” he wrote.
Creditors of companies backed by private-equity firms tend to have higher recovery rates than those run by so-called strategic backers, Moody’s analysts led by Christina Padgett in New York wrote today in a report. In 2009, 163 U.S. non- financial companies defaulted, 77 of them backed by private- equity firms, they wrote.
Yields on Fannie Mae’s current-coupon 30-year fixed-rate mortgage-backed securities climbed 0.17 percentage point to 4.45 percent as of 5 p.m. in New York, the biggest change in percentage terms since Dec. 1 and the highest since Jan. 8, Bloomberg data show.
Mortgage-bond yields followed Treasuries’ higher as 10-year interest-rate swap rates, another benchmark, widened their discount to U.S. government debt after the auction produced higher yields than forecast.
--With assistance from Jody Shenn, Caroline Salas, Richard Bravo and Tim Catts in New York. Editors: Alan Goldstein, Charles W. Stevens
To contact the reporters on this story: Shannon D. Harrington in New York at sharrington6@bloomberg.net; Keith Naughton in Dearborn, Michigan, at Knaughton3@bloomberg.net
To contact the editors responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net; Jamie Butters at jbutters@bloomberg.net
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