General Motors Acceptance Corp.'s dealer floorplan ABS saw some slight widening in the secondary ABS market last week on the heels of a corporate debt downgrade of both the company and its parent, General Motors. Sources around the market saw GMAC floorplan deals up to two basis points wider after the downgrade, much less than many had expected, while its auto loan deals were unchanged.
A sell-side analyst reported that at least one deal from GMAC's SWIFT dealer floorplan trust appeared on his firm's bid list at a "very tight level with no spread widening" as of Thursday afternoon. GMAC's dealer floorplan deals were expected to widen more than its retail auto deals because floorplan deals are more dependant on sales by whole dealerships and not loans for individual automobiles.
According to a syndicate manager with a different investment bank, spreads on GMAC deals were only nominally wider at 0.5 to one basis points wider. "[It] feels like it should be wider but it's not," he said. "[There are] more sellers for sure."
On the high end of the spectrum, analysts with Credit Suisse First Boston said they saw indications of widening in dealer floorplan paper. "Revolving dealer floor plan trusts are likely to continue to come under slight pressure in the short term. Since Tuesday, dealer floorplan paper has widened a couple of basis points," according to CSFB.
While the downgrades did not directly effect GMAC's ABS, should GMAC be downgraded to junk status by any of the three ratings agencies, then those agencies could require increased credit enhancement for the deals. Standard & Poor's, for example, would require 1% additional credit enhancement on all existing and new deals. As long as those companies stay in investment-grade territory, no extra enhancement is necessary, according to S&P Director Corwin Leung.
Early last week, GM revised its earnings outlook from $4 to $5 per share to $1 to $2 per share, leading debt tracker Fitch Ratings to downgrade the corporate debt rating of both GM and GMAC from BBB' to BBB-' last week, while Moody's Investors Service and S&P both placed the companies on ratings watch negative, from stable. Moody's rates GM Baa2,' and GMAC Baa1.' S&P rates GM and GMAC BBB-.' GM said the revised earnings guidance reflects lower North American sales and production volumes, a tougher pricing environment and a more car-based sales mix.
As could be expected, the reaction in the unsecured debt market was more pronounced. Debt issued by both GM and GMAC widened 50 to 70 basis points after the downgrade, depending on the maturity, according to traders. Credit default swaps on GM debt widened by 75 basis points, sources added.
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