NEW YORK — Ford has obtained commitments from enough relationship banks to extend the maturity of at least 90% of $5.35 billion (4.2 billion pounds) of revolving loans for one year, a source close to the financing said.
The second-largest US automaker was in discussions with its bank lenders since early July about a one-year extension of its $3.35 billion three-year main corporate revolving credit facility and its $2 billion three-year supplemental revolving credit facility.
JP Morgan leads the deal, according to thee sources close to the transaction.
The Ba2/BB+/BB+ automaker is seeking to address loan maturities for the first time since downgrades in March removed its last investment grade rating. The move is expected to test banks’ willingness to lend to a US household name in an industry that has been hit hard by the coronavirus pandemic.
More lenders could agree to extend before the transaction closes on July 27. The company is looking to complete the extension ahead of its earnings call on July 30, a second source said.
“They want to be prepared so they can say something good,” the second source said. “That they were able to extend the liquidity by another year.”
To incentivize banks to agree to the extension, Ford offered to repay the $3.35 billion three-year main corporate revolver it borrowed in March as part of a larger $15.4 billion drawdown under its credit facility, the two sources said.
The company is expected to use cash on its balance sheet to repay the $3.35 billion three-year loan on July 27 after the amendment and extension closes, two sources familiar with the transaction said.
As of April 9, Ford had cash of $34.6 billion, including the revolving credit drawdowns, and $8 billion in bond issuances, according to U.S. Securities and Exchange Commission (SEC) filings.
“We typically don’t comment on rumor or speculation,” said a Ford spokesperson. A JP Morgan spokesperson declined to comment.
Both the $3.35 billion three-year main corporate revolving credit facility and the $2 billion three-year supplemental revolving credit facility come due on April 30, 2022, according to SEC filings. The loans will be extended to 2023, two sources close to the transaction said.
The company is offering an all-in spread of 225bp over Libor, split between a drawn spread of 175bp and an undrawn fee of 50bp for the main corporate and supplemental revolving credit facilities that are extended, two sources said.
All lenders who agree to the extension will receive a 40bp fee on the amount extended.
Lenders who choose not to extend will remain in the existing loans at a current all-in spread of 175bp over Libor, split between a drawn spread of 147.5bp and an undrawn fee of 27.5bp for the main corporate and supplemental revolving credit facilities.
The company is leaving unchanged its fully funded $1.5 billion supplemental term loan that matures on December 31, 2022 and the $10.05 billion five-year corporate revolving credit facility tranche due April 30, 2024.
“It’s good. Given that they are not in an easy sector,” the first source close to the transaction said. “It’s a good outcome.”
The fees Ford’s lenders received for its $8 billion in bond issuances in April may have helped them get more comfortable with the extension. The perception the US government supported the automaker via the Federal Reserve’s corporate bond purchasing program may have been another positive, the source said.
The company first reached out to its JP Morgan-led bank group in February to refinance $15.4 billion in revolving credits but in March decided to draw down on the facilities and postponed its refinancing plans as market conditions deteriorated, two banking sources said at the time.
In March, Ford drew $13.4 billion under its corporate credit facility — including the three-year corporate revolver it is seeking to extend — as well as $2 billion under its three-year supplemental credit facility, for a total of $15.4 billion.
The company said borrowings would be used to “offset the temporary working capital impacts of the coronavirus-related production shutdowns and to preserve Ford’s financial flexibility,” according to a March 19 press release.
Ford reported a 33.3% drop in US sales in the second quarter tied to shutdowns and shelter-in-place orders due to the coronavirus, the company said in a July 2 press release.