GM, GMAC Protection Splits on Earnings

Credit protection on General Motors Corp. and General Motors Acceptance Corp. diverged this week on the companies' third quarter financial results, reported Monday, and on speculation about GM's sale of controlling interest in GMAC.

Five-year credit-default swap spreads on GM widened to about 795 basis points on Wednesday from about 775 bps Monday---significantly below last week's spike to 970 bps after Delphi filed for Chapter 11 bankruptcy protection--after the company reported a net loss of USD1.6 billion. Five-year CDS on GMAC tightened to about 271 bps from 315 bps Monday on record third-quarter net income of USD675 million.

Standard & Poor's put GM's BB minus rating on negative watch for downgrade, and GMAC's BB on developing watch Oct. 17, following "very poor" third-quarter results, "owing to the deterioration in the performance of its North American automotive operations," wrote Scott Sprinzen, an analyst at S&P in New York. On the bright side, GM announced a tentative agreement with the auto workers' union, which could reduce its burdensome legacy costs and restore GMAC's investment grade rating

Moody's Investors Service maintained GM's Ba2 and GMAC's Ba1 senior unsecured rating under review Oct. 10 for a possible downgrade. Fitch Ratings maintained its negative watch on GM's BB- rating, lowered from BB Oct. 5.