Ford Motor`s finance arm sold $750 million of three-year notes on Thursday, but its first foray into the world of Internet bond auctions did not draw the demand it had expected.
The Ford Motor Credit unit of Dearborn, Mich.-based Ford, the world`s No. 2 automaker, got much less demand, in percentage terms, than when it sold $8.2 billion of bonds in January. The size of its sale, moreover, came in at the low end of the expected $750 million to $1.25 billion range.
"My sense of Internet auctions right now is that they are a bit difficult," said Todd Truitt, senior vice president at McDonald Investments in Cleveland, which did not participate in the auction.
Just before the auction concluded, the Ford unit had drawn less than $900 million in bids, less than 20% above the amount of bonds it ultimately sold. In comparison, when it sold bonds in January, it drew more than $27 billion in bids, more than triple the amount available.
The use of the Web by Ford, which has more than $150 billion of debt and is the No. 2 US non-agency corporate borrower, is the latest step in corporate treasurers` fitful embrace of the Web as a way to find more bond investors, sell bonds more efficiently and potentially cut transaction costs.
Efficient to buy, inefficient to trade
Many investors already use the Web to sell stocks and US Treasury securities. In the corporate bond world, selling by phone, which allows investors to learn about the complex bonds in detail, remains the medium of choice.
"The advantage to working on the Internet is that it is a much more efficient market, and you get a true market price," said Truitt. "A major disadvantage is that it is an inefficient way to trade. You cannot simultaneously buy one name and sell another. Also, when you deal with a real person, information flow is two-way, you are getting real market colour, and you often end up having a deal that is supported better in the secondary markets."
The Ford unit`s Dutch auction took place on co-lead manager WR Hambrecht + Co.`s proprietary OpenBook Internet bond sale system, at http://www.openbook.com. In a Dutch auction, successful bidders all receive the lowest price, and highest yield, the issuer is willing to accept, even if they bid more.
Last August, Midland, Mich.-based Dow Chemical, the No. 2 US chemical company, was the first company to use the OpenBook platform. It sold $300 million of bonds, and drew $369 million of bids, 23% more.
Ford and Hambrecht were not immediately available to discuss the sale.
Auction details
The Ford unit sold 6.125% notes at 99.959 to yield 6.140%, or 1.6 percentage points more than five-year Treasuries.
In comparison, its existing 5.75% notes maturing in February 2004 were bid Thursday at 1.47 percentage points more than the Treasuries.
Just before the auction ended, more than 70 investors had bid a total of $886 million for the notes, with bids ranging from $93,000 to $75 million. The minimum bid was $1,000.
The Ford unit had invited bids in the 1.45 to 1.65 percentage point range, and most clustered in the middle. Lower bids in percentage points make bonds more costly because investors are agreeing to accept a lower yield.
Moody`s Investors Service rates Ford Motor Credit`s debt "A2," its sixth highest investment grade, with a stable outlook. Another credit rating agency, Standard & Poor`s, rates it a roughly equivalent "A," with a negative outlook.
HSBC Securities also arranged the sale.
Bear Stearns & Co. and Deutsche Bank have also used the Web to auction bonds, as have mortgage financiers Fannie Mae and Freddie Mac.
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