Ford Motor Company announced today that it intends to offer, subject to market conditions and other factors, a $2 billion aggregate principal amount of convertible senior notes due in 2026 in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933. Ford also expects to grant the initial purchasers of the notes a 13-day option to purchase up to an additional $300 million aggregate principal amount of the notes, solely to cover over-allotments, if any.
Convertible notes are short-term debts that convert into equity. The notes will be unsecured, senior obligations of Ford. The notes are expected to accrue interest payable semiannually in arrears.
Conversions of the notes will be settled in cash up to the aggregate principal amount of the notes to be converted and cash, shares of Ford’s common stock or a combination thereof, at Ford’s election, in respect of the remainder, if any, of Ford’s conversion obligation in excess of the aggregate principal amount of the notes being converted. The initial conversion rate and other terms of the notes are to be determined upon the pricing of the offering.
Ford intends to use the net proceeds from this offering for general corporate purposes, including the potential repayment of debt.
The notes will only be offered to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933. Neither the notes nor the shares of common stock issuable upon conversion of the notes, if any, have been, nor will be, registered under the Securities Act of 1933 or the securities laws of any other jurisdiction, and may not be offered or sold in the United States absent registration or pursuant to an applicable exemption from such registration requirements.
Convertible bonds can be a cheap way to raise capital compared to traditional debt sales. Investors are typically enticed by the fact that converting the notes to common shares allows them to accept a lower interest rate. Following the announcement this morning, Ford shares were trending around one percent lower, but with a targeted opening price of $13.07, are still posting an 86 percent gain over the last six months.