Prices for five-year protection on automobile names rose last week following an announcement by units of General Motors of planned multi-billion dollar bond issuances, which were expected to be priced after DW went to press Thursday. The announcement of the issuance on Tuesday caused five-year protection for General Motors Acceptance Corp. to trade early Wednesday at 98 basis points, up from 89 bps at the beginning of Tuesday, according to Marius Maldutis, v.p. and credit derivatives trader at Morgan Stanley Dean Witter in New York. GMAC is expected to issue USD2-3 billion in five-year notes, and GM is expected to issue USD1 billion in 10- year notes, according to a GM spokeswoman in New York. Ford Motor levels widened as well, with five-year protection with restructuring trading on Wednesday at 100 basis points, up from 90bps the day before. Ford is also expected to issue debt later this quarter.
Traders in New York last week noted that DaimlerChrysler was another beleaguered name. Although it usually trades out of London, it has been widening for weeks following questions concerning the standing of the Chrysler Group in the merged entity. Five year protection on the name was quoted early last week at 110bps/112bps, but traded later in the week at 126bps (with restructuring).
A trader noted that automobile companies tend to be cyclical, and have over the last four weeks borne the brunt as the U.S. economy shows signs of slowing down. But the fact that the Federal Reserve lowered interest rates by 50 basis points last Wednesday could lead to a rosier picture for credit protection on the names, as the Fed seems to have signaled it is aiming for a soft landing. GMAC has been steadily widening since August, as a large bond issuance from Ford (DW, 9/4) caused general concern about leverage in the auto sector. Fears of Bridgestone/ Firestone tire litigation spreading to GM has also contributed to widening, said traders.
