Ford’s green bond sees $5 billion in demand as Biden signs climate bill

The bond deal came the same day President Joe Biden signed the Inflation Reduction Act into law, a smaller version of the earlier Build Back Better proposal, which includes an up to $7,500 credit for qualifying electric vehicles if the assembly is finalized in North America.

Ford said in a public filing Tuesday that proceeds from the bond financing will aim to fund clean-transportation projects, including the design, development and manufacturing of electric vehicles in North America. This includes next-generation electric F-150 pickups, future Lincoln vehicles and other vehicles that have yet to be announced.

Ford didn’t immediately respond to a request for comment.

Its single 10-year class of green bonds, rated Ba2 by Moody’s Investors Service and BB+ by S&P Global, fetched 6.1%, according to Informa. Initial talk was in the 6.375% range, CreditSights said.

That compares with the yield on the ICE BofA US High Yield Index narrowing to about 7.2% this week from a peak of 8.8% in July, after the junk-bond market staged a record rally in recent weeks.

EV tax credit

In conjunction with the act’s signing, the U.S. Treasury Department on Tuesday released a two-page fact sheet and related guidance on how the law can make electric vehicles more affordable for households, including for model 2022 and 2023 EVs.

Read: Here’s how the Inflation Reduction Act’s rebates and tax credits for heat pumps and solar can lower your energy bill

Like a wave of other companies in the early part of the COVID crisis, Ford lost its coveted investment-grade credit rating in 2020 after it was downgraded to speculative, or “junk,” status.

In late July, Ford reported second-quarter earnings that blew past Wall Street expectations, despite continued supply-chain issues and concerns about the U.S. economy. Total revenue rose 50% to $40.2 billion, from $26.8 billion a year ago, including a 57% increase in automotive revenue. The “popularity” of Ford’s lineup drove the “solid” results, the company said.

In recent years, investors have been pouring funds into strategies that aim to produce better environmental, social and governance outcomes. Global green-bond issuance has remained robust in 2022, totaling $136 billion in the year’s first half, according to Moody’s Investors Service.

Green bonds were expected to account for about half of Moody’s $1 trillion forecast for sustainable bond issuance this year, a category that includes green, social, sustainability and sustainability-linked bonds.

Shares of Ford were up 0.7% Tuesday, while the S&P 500 index
SPX,
+0.19%
and Dow Jones Industrial Average
DJIA,
+0.71%
finished 0.2% and 0.7% higher, respectively, to extend a powerful summer rally.

Read: Tesla
TSLA,
-0.89%
and Ford attract new investments from George Soros’s fund