Mercedes-Benz Is Asking Its Customers To Invest In Unsecured Bond Notes
Mercedes-Benz car owners are reporting that the carmaker has been sending out letters to extend an “investment opportunity designed for those who demand performance in all pursuits.” If you think that’s strange, it’s probably because it does sound kind of odd and MLM-y. But it all seems legitimate.
The invitation is for a privately placed floating-rate demand note, offered and sold by Mercedes-Benz Financial Services USA (MBFS) only to “accredited investors.” For individuals, this means that you can’t invest unless you’re a US citizen and you make at least $200,000 a year (or $300,000 if you file taxes jointly), or have at least $1 million in net worth, excluding your primary residence. (The definition is detailed in Appendix A of this memorandum.)
The issuer, MBFS, is the subsidiary of Mercedez-Benz Group AG (ETR: MBG), formerly Daimler, that provides financing and leasing products, as well as insurance services to Mercedes customers. According to the memo, the note’s interest rate is decided by what it calls the First Class Demand Notes Committee, and it’s currently set at 2.5%. The memo also says that this current offering is the second series issued by MBFS and the program became effective on March 1, 2017.
Basically what it is, as a May 2018 article from the Wall Street Journal posits, is Mercedes asking to borrow money from you at a lower cost to them. “By marketing these securities largely to employees or customers, companies can cheaply diversify their sources of funding. Individual investors will often settle for lower rates than the professional investors who buy companies’ debt in the public market,” they wrote.
And by “designed for those who demand performance in all pursuits,” they mean that because it’s a demand note, the focus is more on yield rather than diversification.
“Most of our investors that we talk to say it’s not about diversification for them; they’ve got that throughout their investment portfolio,” Chad Bowles, manager of the demand-notes program at MBFS told the Journal. “This is really to fill a void, to replace a money-market fund, CDs, or other instruments for a higher rate of return.”
Potential investors should also note that these are unsecured bond notes.
Information for this story was found via MBFS, the Wall Street Journal, X, and the sources and companies mentioned. The author has no securities or affiliations related to the organizations discussed. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
