While most environmental, social and governance securities issuance has been focused on green bonds, one of the biggest offerings of social bonds in U.S. history is on the way.
Wells Fargo Securities is preparing to price the Ford Foundation’s $1 billion of corporate CUSIP taxable bonds (Aaa/AAA/NR/NR) that will provide grant money directly to non-profit organizations. The deal is expected to come to market next week with the closing planned for the week after next.
The Ford Foundation is an international social justice philanthropy with offices in the U.S. and around the world. The foundation was started by an endowment from Henry and Edsel Ford in 1936 and was supplemented when Edsel died in 1943. That gift of Ford Motor Co. stock was divested in the 1960s and 1970s and today is a diversified portfolio worth about $12 billion. As a private foundation, it is by law required to give away 5% of that endowment value on an annual basis.
“The challenge that we face is that our partners, our non-profits, the organizations that we are missioned to work with, to give away our 5% to, are in a crises,” Darren Walker, president of the Ford Foundation, told The Bond Buyer.
“The non-profit sector in this country is challenged like never before. And for a foundation like Ford, which funds the arts, humanities, social justice organizations, organizations working on workers’ rights, human rights, these organizations we support are all challenged because of canceled fund-raisers, dark theaters, earned revenue down by in some cases by 90% and the forecast for the next 24 to 36 months for most of these organizations is dire,” he said.
While there are many wealthy non-profits in the U.S, most do not have an endowment and many don’t even have six months of operating cash.
Walker said the challenge was that when there is market volatility, endowment values also become more volatile and choppy and that makes it harder to give extra to those who need it more.
Proceeds from this bond issue would help the foundation reach out and help those who are in crises now, he said.
“So this is the challenge we are attempting to address — at a time when we know organizations will need more and yet our endowment cannot produce that,” he said. “We have made the decision that it would not be prudent to reduce our endowment, reduce our liquidity at this time.”
He said that Ford turned to Wells Fargo and Morgan Stanley to help it come to market with a long-term debt offering, the proceeds which will be used to make grants directly to non-profit social justice organizations in the United States and in areas it works in around the world.
“The deal will structured as corporate CUSIP taxable bonds,” said Sally Bednar, managing director at Wells Fargo. “The preference of the Ford Foundation is to issue very long-term debt. Their 2017 inaugural bond issue was a 30-year bullet bond.”
This will be the second taxable issue that Wells Fargo has worked on with the Foundation.
In March 2017, the Ford Foundation sold $273 million of Series 2017 (Aaa/NR/NR/NR) taxable bonds. Wells Fargo priced those bonds [Corporate CUSIP 34531XAA2] at par to yield 3.859% in 2047 (+70 bps over Treasury).
Bednar said market conditions were favorable now.
“In 2017, when they came to market, the 30-year Treasury was about 3% and the 30-year has been in the 1.40% range for the last few weeks. So the underlying technicals are very strong,” she said. “Treasuries are less than half of what they were when they last came to market and we have seen credit spreads tighten in the last two months by about 90 basis points on high-quality AA and AAA credit ratings.”
Bednar added that several high-quality higher education taxable corporate CUSIP deals have come to market successfully in the past few weeks.
“We’ve also seen multiple weeks of bond fund inflows, so individuals and corporations are putting money into bond funds … so we’ve seen a huge demand for really high-quality fixed-income investment-grade product,” she said.
Bednar also noted one difference this time around.
“We’ve also seen — and this is a bit different than 2017 — some foreign investors looking for high-quality U.S. long-dated assets,” she said. “So this transaction will be offered internationally. It has international investor language included.”
Wells Fargo is seeking a formal designation as an ESGl bond from Sustainalytics.
“We’re hopeful that the social bond designation that these bonds will have — the ESG formal designation that we are seeking from a second party — will attract not only U.S. ESG investors, but also those overseas,” she said. “The designation on a social bond issuance is unique, the Ford Foundation is unique, so this may be an unprecedented transaction.”
Walker said the bond issuance was a very timely offering given what was happening at this time in U.S. history,
“The fact that these bond proceeds will be used to fund organizations who are working on building a more inclusive capitalism, advancing operational justice, advancing reconciliation, improving police and community relations, I think that it is a very timely offering that converges with the social needs of this country in a very powerful and profound way,” he said.
Walker is no stranger to social issues. He is co-founder and chair of the Presidents’ Council on Disability Inclusion in Philanthropy and chaired the philanthropy committee that worked on a resolution to Detroit’s municipal bankruptcy.
Before joining Ford in 2013, he was vice president at the Rockefeller Foundation from 2006, overseeing programs that included the “Rebuild New Orleans” initiative after Hurricane Katrina.
Before that, as COO of the Abyssinian Development Corp. in Harlem, he oversaw the building over 1,000 affordable housing units and the first major commercial development in the area since the 1960s.
Previously, Walker worked at Cleary Gottlieb Steen & Hamilton and UBS.
“This is a big mission for social justice and racial equity,” said Giselle Valdez, vice president of public finance at Wells Fargo, who also worked on the 2017 bond deal.
“The timing for this transaction couldn’t be better. So we are extremely excited to continue to work with the Ford Foundation and extremely excited to bring this in front of investors and really give the people the opportunity to almost pay it forward or give back by partaking in the deal,” Valdez said.
Moody's Investors Service said it assigned an Aaa rating to the new issue on Wednesday and affirmed its Aaa rating on the outstanding 2017 bonds. Moody’s said the outlook is stable.
“The assignment and affirmation of the Aaa primarily reflects the foundation's exceptionally strong wealth levels and a business model that is inherently stable as the foundation does not face competitive threats,” Moody’s said. “These strong credit attributes support the foundation's excellent brand and strategic positioning and very good financial strategy.”
S&P Global Ratings assigned its AAA rating to the new deal on Wednesday.
“The rating reflects our view of The Ford Foundation's very large, unrestricted endowment and significant available resources,” S&P said. “In addition, the leadership team has demonstrated successful management of expenses, distribution of funds, and investment oversight over time that has yielded not only an ample balance sheet but also the opportunity to continue to deploy funds to charitable causes even during uncertain times.”