Ford Motor Credit Co., the $20 billion finance subsidiary of Ford Motor Co., surprised the business world-and in some regards, itself-early in the new year, when it successfully concluded the first ever corporate debt offering on the Internet.
If any company was prepared for the world of e-commerce finance, it was Ford Credit. As an early adopter of electronic issuance in its capital markets strategy starting with commercial paper, the company was no stranger to bringing financial processes to the Internet world.
“This E-Bond, as we like to call it, was an exciting achievement for many reasons,” Donald A. Winkler, chairman and CEO of Ford Credit, says of the $1.2 billion transaction. “It was fully consistent with our overall approach of using new technologies when and where it makes sense for our customers. In this case, we were the first corporation to embrace new technology in this way, and it helped us become more agile and nimble. If you think we can’t top it, just stay tuned.”
The real surprise was how deeply democratic the distribution process became once the Internet was involved. The original bond offering was to be for $1 billion, but there was sufficient demand to push the issuance higher.
Even so, 87 percent of all the orders were for $5 million or less. As Bill Cohen, managing director of debt capital markets for Lehman Brothers, the lead manager, notes, “for a Ford transaction that is extraordinary. The average ticket size is normally two to three times higher.”
That meant Ford reached more players with the offering than ever before. “We got twice the number of investors,” says Cohen. “Maybe even more than that when you include Fidelity.” Fidelity Capital Markets, a division of National Financial Service Corp. (which distributed 325-plus separate orders among its client base), also managed the distribution.
All this underscored Ford Credit’s strategy to utilize e-commerce to develop closer links with customers and investors. “We wanted to make sure investors had access to our long term debt via the Internet,” says James Bosscher, Ford Credit’s assistant treasurer, who was in charge of the operation. “E-commerce allows better access to retail customers and smaller institutional customers. It also allows us to use the Internet to make our products, both automotive and financing, more accessible.”
The Internet allows a company like Ford Credit to highlight things not normally accented in a bond transaction. For example, Ford had separate investor presentations, direct linkage to the product Web sites of Ford Credit and Ford Motor, research data from Lehman, Moody’s, and S&P write-ups, and even trading history. By just pointing their mouse, potential investors could click on the perspectus, a Q&A section on Ford Credit’s Internet strategy, information on Ford automobiles, or even secondary trading levels for comparable securities. “There was more extensive information than ever presented in one place to an investor on an investment grade bond deal,” says Cohen.
But while Ford Credit’s bond offering broke something of a psychological barrier in terms of utilizing the Internet in the financial distribution process, technologically, it was no great feat. Lehman Brothers already had a client access site for 17,000 investors that had been used for fixed income research, analytics, etc. The only new step was to add functionality so as to execute primary transactions. As a back-up, a dual-track process was established where orders were confirmed via telephone, but Cohen asserts “investors didn’t need the hand holding process.” Fully two-thirds of all investors gave their orders over the Net.
In another surprise, 40 percent of the investors were from outside the U.S., which, for a U.S. domestic transaction, was nothing short of phenomenal.
On a process basis, the Internet gave Ford a more active role in the distribution. “We could look at the site ourselves and see exactly what was happening,” says Bosscher. “We could see which investors were interested, the geographic distribution, distribution by investor type, how fast the issue was being placed. We had that wealth of knowledge.”
What that means, Bosscher adds, is that Ford Credit can play a more active role in terms of understanding the allocation of the securities. “It gives us much more information so we can work more closely with the investment banks in terms of the allocation process.”
Before the corporate bond was actually offered over the Net, the big concerns for both Ford and its distributors were tech-related. What would happen if the screens froze in mid-process? Were investors prepared to do business of this sort over the Internet? As it turned out, Cohen wryly observes, the only problem was Bill Cohen. Normally on bond offering day, he would be playing middleman, relaying transactional information as it came into the company. Because of the transaparency of the process, Cohen sadly comments, “I had no role that day.”
Steve Bergsman is a Mesa, AZ-based freelance business writer who has written about corporate finance for Reuters, Barron’s, and Global Finance.