The sale of General Motors Acceptance Corp. relieved a number of ABS investors from wondering when the transaction would ever take place, but the sale is anticipated to have a somewhat minimal effect on the troubled U.S. automaker's securitizations. Market players noted tightening within certain GMAC transactions, and some speculated as to whether a new secured liquidity facility made available to the company could lower future securitization volume.
GM announced on April 3 an agreement to sell a 51% stake in GMAC to a group of investors, which is led by Cerberus Capital Management and includes Aozora Bank and Citigroup's private equity group. The sale will not only provide GM with cash, but will also provide GMAC more breathing room in order to achieve better financing rates. The deal will pay GM a total of $14 billion over three years, including an initial $7.4 billion from the group at closing and $2.7 billion from GMAC. While the much needed cash helps to ease seller and servicer concerns surrounding GM in the near-term, the deal is not set to finalize until the fourth quarter of this year. Additionally, a number of clauses within the agreement could negatively affect GM. Perhaps most importantly, the deal will not take place if GM's corporate credit rating falls by four notches to Triple-C or GMAC is lowered from its current double-B rating by any one of either Standard and Poor's, Moody's Investors Service or Fitch Ratings. And while GM will have the option of buying back its finance arm if its corporate credit rating reaches investment grade status, it will have to do so at fair market value - expected to be a considerable hike over the price for which it was purchased.
"It certainly lifts the veil of uncertainty. There was always a question as to whether they would get the sale done - but they are one step closer, which is a relief to both the secured and unsecured markets, plus it frees up some additional funding for GMAC ... and it adds to the legal separation of GMAC from GM which is clearly a benefit," said Joseph Astorina, associate director for ABS research at Barclays Capital. GM also received an infusion of cash in the form of a $25 billion three-year revolving asset-backed secured funding facility from Citigroup, $10 billion of which will be available prior to the deal's close. That facility could be used to finance GM's lending or lease programs, and possibly the automaker's floorplan lending business - a move that could reduce securitization volume if it is seen as a more cost effective avenue, Astorina said.
The biggest impact to the ABS market is likely to be spread tightening in GMAC trust Superior Wholesale Inventory Financing Trust (SWIFT)'s short-dated paper and in subordinate paper from GMAC's retail auto lease program Capital Auto Receivables Asset Trust (CARAT), according to Lehman Brothers.
How much GMAC's ratings are lifted, or if they are at all, depends on a number of factors including the financial strength of the financing arm's new owners and specific terms of the deal. While GM will not be able to drain as much liquidity as it has previously from GMAC under the new arrangement, GMAC's inevitable relationship with GM could act as a factor in continuing to depress the former subsidiary's ratings, some speculate. The legal separation of GM and GMAC is positive for CARAT and SWIFT deals because a GMAC bankruptcy is considered a default event, according to Barclays.
Neither Fitch, Moody's nor Standard and Poor's took any ratings action following the announcement of the deal, yet each rating agency expressed concern regarding the ongoing specter of a strike at the bankrupt auto parts manufacturer Delphi Corp., an event that many feel would trigger a subsequent bankruptcy at GM.
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