Ford Motor gets cut to junk by Moody’s; Hospitality Properties, Prudential Financial, KfW price

By Rebecca Melvin

New York, Sept. 10 – Ford Motor Credit Co. LLC’s bonds – and there are lots of them – were weighed on Tuesday by a downgrade by Moody’s Investors Service of the company’s senior unsecured rating to junk status.

Ford will still be included in the major IG indexes for the time being because the company remains at mid-BBB at both Standard & Poor's and Fitch. (Moody’s cut the senior credit rating to Ba1 from Baa3.)

The downgrade caused credit spreads to widen by about 25 basis points. One of Ford’s bonds, the $1.25 billion of 3.35% notes due Nov. 1, 2022 that priced in July slipped below par to about 99.6 from 100.5 to 100.6 on Monday. The bonds had priced at a reoffered 99.948 or Treasuries plus 155 bps in July.

But with Ford’s more than $35 billion in U.S. dollar index eligible debt, the real question for investors is what would happen to the high-yield market if Ford eventually becomes a fallen angel, according to Hans Mikkelsen, head of U.S. investment grade bond strategy at Bank of America Merrill Lynch.

Mikkelsen said in a note that Ford would be the fifth largest fallen angel ever and its debt would account for 2.98% of the U.S. High-Yield index, and would likely cause repricing of that asset class.

Mikkelson also noted that Ford’s story is idiosyncratic and holds little real meaning for the overall BBB-rated segment of the IG market.

Meanwhile the IG primary market kept humming, albeit at a slower pace than on Monday. Among the larger deals was Hospitality Properties Trust, which priced $1.7 billion of fixed-rate senior notes in three parts.

The Newton, Mass.-based real estate investment trust tranches were $825 million of 4.35% notes due 2024 priced at 99.882 to yield 4.376%, or a spread over U.S. Treasuries of 289 bps; $450 million of 4.75% notes due 2026 priced at 99.844 to yield 4.776%, with a spread over Treasures of 313.5 bps; and $425 million tranche of 4.95% notes due 2029 priced at 98.954 to yield 5.084%, or a spread of 337.5 bps over Treasuries.

Newark, N.J.-based financial services company Prudential Financial, Inc. sold $1.5 billion of 3.7% series E medium-term notes due March 13, 2051 on Tuesday, according to an FWP filed with the Securities and Exchange Commission.

The notes (A3/A) priced at 99.318 to yield 3.737%, or Treasuries plus 155 bps.

The securities feature a make-whole redemption prior to Sept. 13, 2050 at Treasuries plus 25 bps. After Sept. 13, 2050 the notes are redeemable at par.

PerkinElmer, Inc. priced $850 million of 3.3% 10-year senior notes (Baa3/BBB/BBB) at 99.67 on Tuesday.

The notes will have a make-whole call and then will become callable at par.

Proceeds will be used to repay about $770 million of borrowings under the company’s credit facility, which it plans to replace with a $1 billion credit facility, and to redeem its 5% notes due 2021. If PerkinElmer does not redeem the 2021 notes, it expects to use any remaining net proceeds from the offering for general corporate purposes.

Elsewhere, KfW priced on Tuesday $2 billion 1.75% 10-year green bonds at 99.9 to yield 1.761%, or a yield spread of mid-swaps plus 21 bps, according to a syndicate source.

Pricing came at the tight end of guidance for a yield spread of mid-swaps plus 22 bps area.

The global deal is guaranteed by the Federal Republic of Germany and registered with the SEC.

BNP Paribas, Citigroup and TD Securities are joint bookrunners of the notes, which are expected to settle on Sept. 17.

The proceeds are earmarked for contributing to loan programs that seek to further energy efficient construction and the use of renewable energies.

KfW is a German government-backed bank based in Frankfurt.

And Oesterreichische Kontrollbank AG priced $1.5 billion in three-year global notes at Treasuries plus 8.75 bps, according to a term sheet released Tuesday.

The 1.625% notes due Sept. 17, 2022 were priced at 99.933.

The OeKB notes are guaranteed by the Republic of Austria-and were sold by joint underwriters Citigroup Global Markets Ltd., Goldman Sachs International, HSBC Bank plc and Merrill Lynch International.

In addition, Florida Power & Light Co. priced $800 million of 3.15% 30-year first mortgage bonds (Aa2/A/AA-) at a spread of 100 bps over Treasuries on Tuesday, according to an FWP filed with the SEC.

The notes priced at 99.363 to yield 3.183%.

Proceeds will be used for general corporate purposes, including the repayment of commercial paper.

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