Ford Credit cuts 2004 debt funding plans

Tue Jul 20, 2004

NEW YORK, July 20 (Reuters) - Ford Motor Credit Co., the finance arm of Ford Motor Co. (F.N: Quote, Profile, Research) , on Tuesday said it is ramping up its commercial paper issuance as investor demand for the short-term securities rises.

More short-term borrowing will translate to a little less medium- and long-term borrowing for Ford Credit, which combined with its parent is the largest corporate bond issuer in the United States.

Ford cut its estimate of the amount of medium- and long-term bonds its credit arm will issue in 2004 to a range of $13 billion to $19 billion, from $16 billion to $22 billion.

The company has reduced its medium and long-term issuance plans twice this year, as it has ramped up its commercial paper issuance.

As of the end of June, Ford Credit had about $24.2 billion of secured and unsecured commercial paper outstanding, compared with $21.1 billion at the end of December.

Companies are broadly increasing their commercial paper issuance, although the issuance is still well off the peak reached in 2000, said Robert Porter, managing director for commercial paper capital markets at Banc of America Securities in San Francisco.

Higher issuance is partly a sign of the economy improving. Commercial paper issuance can finance the higher cash needs a company has as it increases production, but before it gets paid for its goods, Porter said.

Also, with longer-term rates rising, issuing long-term debt is not as attractive as it was two years ago.

Companies for the last several years have paid off their short-term debt and instead borrowed with longer-term securities, to take advantage of low long-term rates.

Meanwhile, investors are increasingly drawn to commercial paper as well. Longer-term bonds will see their values hit as rates rise, but shorter-term investments like commercial paper will offer higher yields as the Federal Reserve tightens.

As commercial paper issuance has grown, Ford Credit has twice cut its forecast for 2004 medium- and long-term issuance from its original $20 billion to $25 billion. These estimates include both asset-backed and unsecured notes.

Ford medium- and long-term bonds account for almost 3 percent of the value of the widely watched Lehman Brothers U.S. credit index and are held in some form by most corporate bond portfolio managers.

In 2003, Ford's credit arm issued about $30 billion of medium- and long-term debt.

Ford Motor Co. said on Tuesday its second-quarter profit more than doubled, to $1.2 billion, or 57 cents a share, from $417 million, or 22 cents a share, a year earlier.

But Ford's shares fell and its corporate bonds weakened relative to Treasuries because the gains were driven by strength in Ford Credit, which could be difficult to maintain as interest rates rise.

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