Ford Repurchasing $5 Billion in Debt, Tapping Into ESG & Green Bonds

Matt Posky
by Matt Posky
ford repurchasing 5 billion in debt tapping into esg green bonds

Ford Motor Co. has announced a cash tender offer to repurchase up to $5 billion of the company’s high-yield debt in the hopes of rebalancing its budget after needing to borrow so much during the back-to-back-to-back production shutdowns incurred since the start of 2020. The automaker is retiring as much of the $8 billion in bonds the company issued at the start the coronavirus pandemic as it can and will be doing the same for some older bonds issued at similarly high rates (over 8 percent annually).

However this will be used to make room for environmental, social and corporate governance (ESG) initiatives and establish a “sustainable financing framework” the automaker said would be a first for North America. Ford clearly believes social governance investments will become increasingly routine and is attempting to showcase itself as one of the kinder, more forward thinking, and environmentally responsible multinational industrial concerns. Sort of like a fully armed M1 Abrams tank painted with peace symbols and hippie daises.

“Winning businesses are financially healthy and lead in sustainability – it’s not a choice, they rely on each other,” said Ford CFO John Lawler. “We’re again putting our money where our mouth is, prioritizing and allocating capital to environmental and social initiatives that are good for people, good for the planet, and good for Ford.”

ESG investing is growing in popularity, with financial backers increasingly prioritizing strategies that take into account a company’s environmental, social, and governance factors. However critics have pointed out that ESG strategies are often more about the perception of doing good than any genuine altruism and run the risk of setting up corporations as ethical arbitrators. It’s also encouraging investors to pour real money into a corporation’s perceived moral values, rather than focusing on what it’s bringing to the table in terms of legitimate business. This is one reason we’ve seen so many EV startups awash with cash long before they even have a working prototype.

Social Capital founder and CEO Chamath Palihapitiya has called the ESG trend fraudulent, suggesting whatever merit it previously had has been undermined by the way in which environmental jargon has been weaponized to benefit the largest corporations in the world. The venture capitalist/engineer now believes people should be weary of being scammed by business entities and government agencies championing ESG investments because they’re being used to game the system and give certain players an unfair advantage. At their worst, they can even encourage businesses to become overt political actors.

“These are useful statements. It’s great marketing. But again it’s a lot of sizzle, no steak,” Palihapitiya told CNBC early in 2020.

While your author is inclined to agree, let’s test those claims against Blue Oval’s plan to rejigger Ford Credit into a more “inclusive, equitable, and sustainable” business model.

From Ford:

Today’s announcement was made on the fifth anniversary of the Paris Climate Agreement, as Ford executives joined world leaders, environmental advocates and other forward-looking companies at the United Nations Climate Change Conference (COP26) in Glasgow, Scotland.

Among other expected benefits, initiatives outlined in Ford’s sustainable financing framework are intended to help the company become carbon neutral no later than 2050, in line with its commitment to the Paris Agreement. Ford was one of the first full-line U.S. automakers to pledge to reduce greenhouse gas emissions from its vehicles, operations and supply chain in alignment with goals of the accord. This pledge is backed by science-based interim targets the automaker intends to achieve by 2035.

The potential positive environmental and social influence of projects described in Ford’s sustainable financing framework earned an “advanced” rating – the highest possible – from Vigeo Eiris. Vigeo Eiris, an arm of Moody’s Corp., makes independent assessments of organizations’ goals and performance against environmental, social and governance matters.

Guided by aggressive environmental and social goals, a significant portion of related financing will go toward accelerating Ford’s leadership in electric vehicles. Objectives include expanding EV technology and charging infrastructure to remove obstacles to adoption and improve the customer experience, and EV and battery manufacturing to reduce emissions.

The automaker then goes onto explain how new green bonds should enable Ford Credit to extend financing to customers with lower credit scores. Everything else was vague promises about how it would be putting some of the money back into electric vehicles, cleaner manufacturing protocols, community revitalization projects, and “advancing economic opportunity and equity for underrepresented and/or disadvantaged populations” via programs that help scale up Ford’s dealer diversity networks. That pertains specifically to the advancement of “businesses owned by minorities, women, military veterans and disabled people, and for women-focused community ventures and social enterprises that promote better health, develop critical skills, and support child and maternal health, education and disability support services.”

It’s all incredibly broad. But Ford will also be creating a new “sustainable financing committee” to assure that the funded projects comply with Blue Oval’s corporate social responsibility plan and otherwise meet eligibility criteria. It will be comprised of senior representatives from the automaker’s treasury, sustainability, corporate finance, investor relations, Ford Credit and legal teams.

Considering the report we published outlining the massive amount of automotive debt currently being carried by Americans and the increasingly predatory nature of lenders, Ford creating a kinder, gentler credit arm should be a blessing. But its getting difficult to take any ESG chatter seriously anymore. My guess is that Blue Oval simply wants to upgrade its credit rating after it lost its investment-grade status in March 2020 and thinks ESG can help it avoid future scrutiny.

[Image: Ford Motor Co.]

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6 of 20 comments
  • SoCalMikester SoCalMikester on Nov 04, 2021

    whatever brings their stock price up. i got in at $12, and theyre going to pay off my mortgage when i decide to cash out

  • EBFlex EBFlex on Nov 05, 2021

    Imaging spending $5 billion just to show how woke you are. They got all the woke buzzwords in there too. “Science based” which means it isn’t. “Green” which means it isn’t. “PARIS Climate Accord” which is the biggest steaming pile of garbage the world has ever seen. The USA does all the work while China and Russia do nothing. Makes sense. “Social initiatives” which means…..absolutely nothing. “Green” which is code for wealth redistribution and really has not a single thing to do with the environment. “We’re again putting our money where our mouth is, prioritizing and allocating capital to environmental and social initiatives that are good for people, good for the planet, and good for Ford.” Someone forgot to tell Ford that EVs are amazingly bad for the planet. But if Ford keeps telling themselves people want these poor replacements for proper vehicles, they will believe it reality be damned. “Objectives include expanding EV technology and charging infrastructure to remove obstacles to adoption and improve the customer experience” You can improve the customer experience by giving them vehicles that use an energy source that’s easily obtained, wonderfully cheap, and is extremely power dense. You need EVs with a minimum 700 mile range. With charging stations few and far between and very slow when you finally find one, the range needs to be double (or so) what an average ICE vehicle is. Until then, they are nothing more than compliance vehicles that require an entire other vehicle because of there severe shortcomings. Not very “green” Thanks for the laugh Ford. That was good. Haven’t laughed that long in a while. What do they say about inmates running the asylum?

    • See 2 previous
    • FreedMike FreedMike on Nov 05, 2021

      @SCE to AUX “The USA does all the work while China and Russia do nothing.” Translated: they're not doing the right thing so we shouldn't either. Same logic: "The projects are full of people who live off the government, so I should be able too." "China jails people for making up stuff about politicians, and so should we." Clearly climate change is a huge issue, and it's not something that's out of our control. Whatever happened to doing the right thing even if other people aren't?

  • MaintenanceCosts Despite my hostile comments above I really can't wait to see a video of one of these at the strip. A production car running mid-eights is just bats. I just hope that at least one owner lets it happen, rather than offloading the car from the trailer straight into a helium-filled bag that goes into a dark secured warehouse until Barrett-Jackson 2056.
  • Schurkey Decades later, I'm still peeved that Honda failed to recall and repair the seat belts in my '80 Civic. Well-known issue with the retractors failing to retract.Honda cut a deal with the NHTSA at that time, to put a "lifetime warranty" on FUTURE seat belts, in return for not having to deal with the existing problems.Dirtbags all around. Customers screwed, corporation and Government moves on.
  • Bullnuke An acquaintance of mine 50+ years ago who was attending MIT (until General Hershey's folks sent him his "Greetings" letter) converted an Austin Mini from its staid 4 cylinder to an electric motored fuel cell vehicle. It was done as a project during his progression toward a Master Degree in Electrical Engineering. He told me it worked pretty well but wasn't something to use as a daily driver given the technology and availability of suitable components of the time. Fueling LH2 and LOX was somewhat problematic. Upon completion he removed his fuel cell and equipment and, for another project, reinstalled the 4 banger but reassembled it without mechanical fasteners using an experimental epoxy adhesive instead which, he said, worked much better and was a daily driver...for awhile. He went on to be an enlisted Reactor Operator on a submarine for a few years.
  • Ajla $100k is walking around money but this is almost certainly the last Dodge V8 vehicle and it's likely to be the most powerful factory-installed and warrantied pushrod engine ever. So there is some historical applicability to things even if you have an otherwise low opinion of the Challenger.And, like I said up thread, if you still hate it will be gone soon anyway.
  • Carlson Fan GM completely blew the marketing of the Volt. The commercials were terrible. You'd swear they told the advertising company to come up with an ad that would make sure no one went out and shopped a Volt after seeing it!...........LOL My buddy asked why I bought a car that only goes 40 miles on a charge? That pretty much sums up how confusing and uninformative the advertising was.