General Motors Corp.'s deal to sell a majority stake in General Motors Acceptance Corp. briefly had the tightening effect on credit-default swaps spreads traders expected, but it didn't last long.
GMAC spreads dropped to 276 basis points the previous Friday in anticipation of the news--which was unveiled last Monday--in from 442 bps the previous Wednesday. After the sale became official, spreads plunged to 300 bps last Monday. "I certainly didn't expect spreads to get tighter than 300 bps," said one flow trader, noting he expected GMAC to fall to 315/320bps. "But I also didn't expect such a quick snap-back."
Spreads traded inside of 315 bps for about 15 minutes last Monday, traders said, before profit-takers and ambiguous information promptly pushed spreads wider. Later the same day, the major ratings agencies announced they are maintaining junk ratings and investors began to digest the lead buyer's mediocre credit quality and deal terms along with uncertain news about negotiations with Delphi Corp. and the Auto Workers' Union. "People became less impressed," one trader said. "People realized the sale didn't fundamentally change GM's position." GMAC closed at 320 bps Monday, 340 bps Tuesday and 360bps Wednesday.
Other auto names came in after the announcement Monday, but the pressure spilled over and they, too, widened out. "Autos are not trading phenomenally," said one trader. "I think everyone's realizing this is not the end of the auto story."
