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.]