GE, Ford try fresh pitch for marketing debts

Duke Energy Corp., Ford Motor Co. and General Electric Co. are enticing more people to buy their debt through investments pitched as higher-yield alternatives to checking accounts and money funds.

These and other companies that sell the debt, called floating-rate demand notes, are exploiting frustration with money-market funds paying an average 0.03 percent as of May 29 and bank savings accounts at 0.13 percent. The notes, which usually require a minimum deposit such as $500 or $1,000 and offer checks to access the money, are paying 1 percent to 1.6 percent.

The notes help companies diversify their funding, which is skewed to securities such as commercial paper and bonds bought mainly by institutions. For retail investors, they provide less protection than an insured bank account or a money fund that holds debt from many issuers. The notes aren’t secured.

“It looks like these programs are a much better deal for the company than they are for the individual investor,” said David Sekera, corporate bond strategist at research firm Morningstar Inc. “These programs don’t appear to pay enough extra spread over money market funds to compensate the investors for the credit risk and lack of diversification.”

Issuers generally can change payout rates weekly. Duke Energy and Ford Credit, the company’s finance unit, promise to pay at least 0.25 percent more than the average money fund rate. GE doesn’t guarantee a minimum.

“I like to call them a bond with a checkbook,” said John Heffernan, director of the Premier- Notes program at Duke Energy. “The unique thing about this is we’re selling them directly to the investors.”

“Looking for CD or money market rates? You can do better,” according to the marketing on GE’s Interest Plus website. The notes are issued by GE Capital, the finance unit of the industrial and financialservices company.

“The real benefit of this product is flexibility,” said Russell Wilkerson, a spokesman for GE Capital. “It allows customers to come in without a sales fee and exit at any time without a penalty. That supreme flexibility and an attractive yield is the strength of the offering.”

If a corporation selling these notes defaulted, investors’ money would probably be tied up in bankruptcy court and they may lose a significant portion of their investment, Sekera said.