Ford's new green bonds: ‘Beginning of the journey'

Editor's note: Credit extended through the green bond program will be used for the purchase of electric or hybrid vehicles, a Ford spokesman said. An earlier version of this story misstated those terms.

DETROIT — Ford Motor Co. last month announced a new "sustainable financing framework" that will provide the automaker with access to new sources of capital, including investors supporting environmental, social and governance initiatives.

Officials say new green bonds would enable Ford Credit to extend financing to customers with lower credit scores, while requiring them to buy electric or hybrid vehicles.

Days later, Ford issued a $2.5 billion green bond, which has a 3.25 percent coupon and comes due in 2032, to help fund some of its upcoming EVs.

Dave Webb, Ford's treasurer, and Bob Holycross, Ford's vice president of sustainability, environment and safety engineering, spoke with Staff Reporter Michael Martinez about the new framework. Below are edited excerpts.

Q: What other industries did you look at when developing the sustainable financing framework?

Webb: There are certainly other comparisons to frameworks like this. Some of our peers in adjacent industries have them. There are other automakers in Europe that have them as well. One of the things that's unique about our framework in particular is that it's integrated and meant to cover the enterprise in total. It's meant to cover Ford as well as Ford Credit. We approached it with that holistic lens in mind. We used that as the basis and then set out on the categories we thought were going to be really important for us as we move forward. We settled on "clean transportation," "clean manufacturing," "making lives better" and "community revitalization." We thought it created a really compelling package.

Holycross: We also saw it as an opportunity to reinforce our differentiation in this space. Yes, there are other industries that have moved in this direction, but for us, we've been on this journey for quite some time, and quite frankly ahead of it. For over 20 years we've done sustainability-based reporting. And what we've found with where we are today ... key investors and stakeholders also want to understand this. When they're investing in companies, they want to see because they're challenged by their own constituents to make sure this is real and goes beyond a bunch of tag lines or aspirations or a glossy environmental report you put on a website. They want to see the data behind it to make sure it's authentic and genuine. We felt the building blocks were in place to translate this into a financing framework and have the goods to back it up.

Who within Ford will apply the criteria and determine what gets funded?

Holycross: As part of the framework we've stood up a governance board committee within the company that has responsibility for governing the investments and projects with the criteria that were established. It goes across functions, between myself from an [environmental, social and governance] standpoint and Dave Webb and the treasury and finance teams. It is formalized in terms of having an internal committee that makes the decisions and reviews the recommendations around the investments.

Does the framework apply to initiatives that have already been announced, such as the F-150 Lightning or the Michigan Central Station project, or is it just for future announcements?

Holycross: It's really a combination as we continue to need to raise capital to finance the buildout around some of the announcements we've already made: On the manufacturing side for the ongoing construction and development, or on the product side as we continue to invest for battery development and other products. It's really an overlapping between some of the things we've already talked about and some things in the future.

Can we take this as a sign that you'll be making further investments in electrification beyond the $30 billion you've already announced?

Holycross: It is fair to assume that. When you think about what we've talked about in terms of the overall transformation and how we want to lead in this space, and some of the things we've talked about in terms of by 2030 half our fleet getting to electric, and when you think about this on a global scale and how we're moving in Europe and China as well, inevitably there's more to come. This is really the beginning of the journey.

Webb: The $30 billion is for a specific timeframe: 2020-2025. As Bob mentioned, we're just getting started in regard to where we want to go with this, and we're committed to leading in the space. The framework is so core to the direction we think the company is going. What we've really seen has been a convergence of company strategy and all the work being done with sustainability effectively merging and becoming one. The framework allows us to marry our capital strategy to that. All three of those parts working together provides us better access and more diversification in terms of funding. As we think about our business and where it's going, all of our big capital needs will be linked to this effort in electrification.

Why has the market reacted so positively to these types of green bonds? Is it a sign Wall Street wants you to invest in electric vehicles?

Webb: I think the answer is yes. We have the ability to enact positive change in regards to our physical approach to the business: making EVs, how we approach clean manufacturing and those types of things. When you think about the financial services industry, the way they're able to help drive change is how they're allocating their dollars. What we're seeing is an increasing amount of capital move into these spaces that are pushing ESG-related initiatives.

What was the reaction to your issuance of a $2.5 billion green bond?

Webb: We saw a tremendous amount of investor interest. In fact, the book built over $10 billion so it was massively subscribed. It was both a broad and a deep book in regards to investor participation. Pricing was through what we could do in a traditional market issuance, so it was probably 20 basis points tighter, so it was a benefit to us issuing under that framework. It shows how seriously the market is taking this, how much money is chasing these types of initiatives and how much capital is being allocated to these initiatives, and I think it's just the start.

Where will the money raised from that bond go?

Webb: The way we positioned this first issuance was specifically in the area of clean transportation. Even more direct, it's going to fund the investments in our electric vehicles. The proceeds will be allocated to funding things like the Mach-E, the F-150 Lightning, the E-Transit and a number of electric vehicles we have yet to announce. With our initial issuance we thought it was really important to make it as clean and as simple for investors to understand as possible, and we thought pointing to the products that investors have already seen made a lot of sense.

Will this framework play a role in helping you return to an investment grade rating?

Webb: Similar to automotive manufacturers, similar to asset managers that are buying our bonds, the rating agencies are also very focused on companies' commitment to sustainability. They're spending increasing amounts of time looking at and evaluating them from this perspective. As we think about the path back to investment grade, I think the launch of the framework, the receptivity to the green bonds and the access to capital and the debt repurchase, I think the rating agencies view that as a credit positive.

I don't think that in and of itself will be sufficient to get us back to investment grade — that was never the intent. But that continues us on that path, and I think that's really important. Ultimately our getting back to investment grade is about making sure our operating performance is where it needs to be, and I think you've seen us make notable improvements in the Ford+ plan over the last couple quarters. That's what we're intent on doing in 2022 and beyond.

Should we expect you to issue more green bonds in the near future or will these announcements be more spread out?

Webb: We set this framework up to be a platform to fund the business going forward. It won't be the only platform we have, but it will be a meaningful one and one that certainly on the automotive side of the business will handle a vast majority of our funding needs. Whatever we do with regards to funding will first and foremost be dictated by what we think is the right capital structure for the company and what our capital needs are at the time. To the degree that we need to raise incremental debt, I think it's highly likely on the automotive side that we'll use this platform and it will be the means by which we'd do that. It won't be the sole source of how we approach the markets, particularly on the credit side of the business, but it will be part of the toolkit — and an important part.