General Motors Acceptance Corp., completed last week a $2.5 billion auto ABS with an unusual feature: a below investment grade rated D-tranche via Credit Suisse First Boston, Lehman Brothers and SG Corporate & Invest-ment Banking, The $25.9 million D tranche of GMAC's Capital Auto Receivables Asset Trust 2004-2, was rated double-B and double-B plus by Standard & Poor's and Fitch Ratings, respectively. Moodys Investors Service, however, rated each tranche except the D-tranche. A Moodys spokesperson declined to comment on why it did not rate the tranche.
The deal represents the first time GMAC has ever offered a structured financing with triple and double-B rated tranches. A market source said the lower rated tranches are likely to become a fixture of GMAC's future ABS deals. The market has only seen double-B rated auto paper in each of the Bear Stearns Whole Auto Loan Trust vehicle offerings of the last three years. Ford Motor Credit has structured to the triple-B level.
"The market has been very accepting of these lower-rated tranches," said the source. GMAC has looked at the economic opportunity of selling such classes and decided they can get more liquidity and monetize more of the deal by creating lower rated tranches, the source continued.
Despite Moodys not rating the D-tranche, portfolio managers seemed to be diving right in. The D-tranche priced Wednesday at 210 basis points over swaps, which one portfolio manager thought was tight, but obviously still wide enough to attract a healthy amount of interest. "In this environment where investors are starving for yield, it doesn't surprise me that [the D-tranche is] five times oversubscribed," said one portfolio manager.
This offering also represented the first time since 2001 that GMAC has securitized both used car loans and nonsubvented loans, according to Fitch's presale report, offering the potential for both higher losses and loss severities. The pool is made up of 58% subvented loans backed by new vehicles and 22% nonsubvented new vehicle loans. Subvented and nonsubvented loans backed by used collateral constitute the other 20% of the pool.
The initial credit enhancement of the deal is equal to 7.50% for the class A notes, 3.75% for the class B notes, 2.50% for the class C notes and just 1.5% for the double-B rated D notes. The target enhancement for the triple-As would eventually total 8%.
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