There was active buying and selling of protection on General Motors Acceptance Corp. last week after parent General Motors Corp. announced a sweeping restructuring plan. The U.S. auto maker will close 12 North American factories and cut 30,000 jobs in an attempt to reduce its manufacturing capacity and bring costs in line with Asian producers.
Traders said the news saw the price of protection sold on GMAC hit a low of 330 basis points Monday, more than 100 bps tighter than the week before. A large group of protection buyers then hit the market Tuesday, pushing spreads out again to around 430 bps. "People are trying to top and tail," said one dealer. Five-year was the most heavily traded maturity, noted one official, who also said volatility and perceived notional risk over shorter dates has slightly inverted the name's forward credit curve.
The fluctuation in GMAC credit spreads came days after dealers began trading GM upfront in anticipation of the company heading for bankruptcy. Officials said dealers reverted to running prices early last week, indicating a minor recovery in bearish sentiment, but jumped back to upfront prices as DW went to press. "Volatility means prices are wavering between the two," said one official.
Price of protection on GM was 17-19 bps upfront plus 500 running. GMAC is rated BBB by Fitch Ratings, BB by Standard & Poor's and Ba1 by Moody's Investors Service. All three have the name on evolving watch.
