The General Motors Corp. and Ford Motor Co. fallout put corporate market volatility in the spotlight last week, softening spreads further on the European front but analysts at least had some good news with regards to deals tied to the two names.
GM and Ford are tied to a number of European RMBS, CMBS and auto ABS, both at the originator and servicer levels. Ford has four deals outstanding from its Globaldrive series, issued through its European subsidiary FCE Bank. GM is tied to GMAC-RFC, the mortgage lender that is a wholly owned subsidiary of GM's lending arm General Motors Acceptance Corp. GMAC-RFC's Dutch mortgage shelf, E-MAC, and its U.K. shelf, RMAC, transactions have all been put in question following the downgrades.
The two names are also tied to a number of investment grade synthetic CDOs. Standard & Poor's said last week that the downgrades would lead to only limited downgrades of these publicly rated European synthetic CDO transactions, established to be 745 classes from 561 synthetic transactions. Of these 745 classes, only 19 require downgrades (none will require more than a one notch downgrade) and 25 will be placed on CreditWatch with negative implications, said the ratings agency.
The rating actions should not impact the deals directly because the early amortization triggers within these transactions require the insolvency of the originator as opposed to only a ratings downgrade, according to analysts at Barclays Capital. The RMAC RMBS series of transactions, for example, are serviced by third-party servicers and are based on static pools of collateral. The possibility exists that GM might consider selling its residential business, but auto analysts at Dresdner Kleinwort Wasserstein said that scenario was only likely in the case of a serious liquidity crisis.
If, however, that situation were to arise, the trustee would be obliged to put a backup servicer in place. "In any case, to put a stand-by servicer in place would be a precautionary and reassuring measure for investors," added Dresdner analysts. At the moment, RMAC servicing is sub-contracted to third party servicer, HomeLoan Management Ltd. However, the Dutch RMBS deals under the E-MAC series do incorporate some links to GMACs ratings.
The E-MAC 2002-1, 2003-1, 2003-2, 2004-1, and 2004-II deals all contain borrower notification triggers linked to GMAC's long-term rating because the underlying assets were transferred via conditional rather than a true sale at closing - typical for Dutch RMBS. "The Dutch RMBS transactions would have required notification to all borrowers once GMAC was rated triple-B minus (at some expense) although S&P confirmed they didn't require this in October last year," said one source. "GMAC-RFC Nederlands services the mortgages for the E-MAC series, although they appoint a sub-servicer to actually process the loan payments. A similar approach is used for the U.K. RMAC deals. Therefore servicer risk is reduced." But all the E-MAC deals now use the new Dutch true-sale legislation, which came into effect last October and analysts at Dresdner noted that Moody's Investors Service had replaced its original Baa2' notification trigger with a new Ba2' trigger, linked to GMAC to mitigate co-mingling risks.
The Globaldrive transactions have greater risk exposure to the Ford name because they are serviced by the Ford finance subsidiary, FCE Bank, in Europe and have a revolving structure, requiring the generation of new collateral. There are four deals outstanding in the Globaldrive series - Globaldrive (U.K.) Plc began amortizing in November 2003 and the Globaldrive B.V. series D breached an early amortizing trigger last year.
Dresdner analysts said the revolving period had been due to end in March this year, but that series E and F are still in the revolving phase, due to start amortizing within the next 14 months. A FCE Bank insolvency would lead to an early amortization and replacement of the servicer - unlike the GMAC deals, these transactions have no back-up servicer in place. "With regards to the Ford Globaldrive transactions these notes are not regularly traded, and in light of the reaction when Fiat [S.p.A.] had issues two years ago, investors will likely hold onto paper rather than accept low prices to subsequently see the notes trade tighter," reported one industry analyst.
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