General Motors Acceptance Corp. last week locked in the initial $10 billion portion of its three-year, $25 billion asset-backed secured funding facility from Citigroup. The facility came as a term of the April 3 sale of a 51% controlling interest in GMAC by General Motors Corp. to a group of investors led by Cerberus Capital Management - which includes Citi, Aozora Bank and a subsidiary of PNC Financial Services. The closure came while GMAC was roadshowing an auto ABS deal rumored to be between $2 billion and $3 billion.
The entire line of the facility is approved for the purchase of rated U.S. ABS - including the lender's dealer floor plan assets. And, in what is a first for GMAC, up to $4 billion of the facility can be used to purchase unrated notes backed by U.S. assets not typically securitized by GMAC in its other secured funding programs, according to the company.
Even though some speculated the facility could mean less ABS from GMAC in the future, market players generally saw the funding facility as a positive. Spread tightening was expected on GM ABS - in the near term as a result of lessened seller-servicer concerns on behalf of investors, and in the long term due to the chance of a more limited supply of the company's deals on the market. None of the big three rating agencies had made a move toward raising GMAC's corporate credit rating on the news.
GM earlier this month said the GMAC sale could be delayed beyond its expected fourth quarter close due to difficulty gaining regulatory approval. (The Federal Deposit Insurance Corp., for one, announced it is taking a six-month break from approving ownership changes affecting industrial loan companies) Standard & Poor's last week said GMAC's current BB' rating is under review; upon the deal's close, S&P is likely to raise GMAC to BB-plus,' the highest junk bond rating, the agency said. A delay in the sale of GMAC is likely to cause the lender to endure less favorable financing rates - which the company recently said had "climbed to unprecedented levels" for a longer period of time.
De-linked relationship
While the troubled automaker will not be able to drain as much liquidity as it has previously from GMAC under the new arrangement, some speculate that GMAC's relationship with GM may never be entirely "de-linked" in the eyes of rating agencies. The legal separation of GM and GMAC, however, is positive for Capital Auto Receivables Asset Trust (CARAT) and SWIFT (Superior Wholesale Inventory Financing Trust) deals because a GMAC bankruptcy is considered a default event, according to Barclays Capital.
GMAC's sale would 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. 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. 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.
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