Ford Motor Credit Prices Notes but Baby Bonds More Attractive

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Includes: F, FCJ
by: Rubicon Associates

On the tape yesterday about Ford (NYSE:F) (B1/B+) (Bloomberg):

Ford Motor Co. sold $1.75 billion of five-year notes today, according to data compiled by Bloomberg.

The debt issued by the automaker’s Ford Motor Credit Co. unit yields 7.125 percent, or 4.416 percentage points more than similar-maturity Treasuries, Bloomberg data show. Proceeds will be used for general corporate purposes, according to the data.

The notes are expected to be rated B1 by Moody’s Investors Service and B- by Standard & Poor’s, the data show. Royal Bank of Scotland Group Plc, Barclays Bank Plc, Citigroup Inc. and JPMorgan Chase & Co. underwrote the offering, according to the data.

Ford Motor Credit’s 8 percent notes due in 2016 traded yesterday at 105.5 cents on the dollar to yield 6.954 percent, or 2.971 percentage points more than similar-maturity Treasuries, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

At first blush, this might seem pretty attractive. It might be worth looking at the "baby bonds" ($25 par senior unsecureds) as these trade at a current yield of 7.91% and a stripped yield (less accrued) of 8% and have an equivalent dollar price of $96 (using the px x 4 back of the envelope method). While difficult to position in institutional size (traded less than 70k shares yesterday), the baby bonds typically have a higher yield than their institutional brethren.

If you want Ford Motor exposure, you could look at the F 7.5% baby bonds (FpA) with a current yield of 7.75%.

Disclosure: Author is long FCJ (FMCC baby bonds)

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