New York - Ford Motor's finance unit is paying a high price for access to a corporate debt market that is anticipating the second-biggest US car maker will default.
Yields on $1.5 billion (R9.2 billion) floating-rate notes that Ford Motor Credit sold last week were the highest since 1992, even with an option allowing investors to sell the bonds back to Ford in two and a half years.
Ford will pay 9.45 percent for the next three months on the six-year notes.
Ford is trying to preserve a source for cash and ease rating companies' concerns that the car maker is too dependent on securities backed by vehicle loans.
While loan-backed offerings have a lower borrowing cost, they leave fewer assets available for bondholders to claim in a bankruptcy.
"They wanted to stay in the corporate market even though it hurts," said Mirko Mikelic, a portfolio manager at Fifth Third Asset Management. "The coupon is huge, but they're in a serious situation." - Bloomberg
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