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Derivatives

Spreads Widen On Ford/GMAC After Disappointing Sales Results

Credit-default swap spreads on Ford Motor Credit and General Motors Acceptance Corp. widened last week after second quarter automotive sales figures failed to live up to expectations.

Credit-default swap spreads on Ford Motor Credit and General Motors Acceptance Corp. widened last week after second quarter automotive sales figures failed to live up to expectations. Five-year credit protection on Ford widened to 174 basis points Wednesday, out from 166bps the week before, according to a New York-based trader. Protection on GMAC, meanwhile, moved out to 173bps, from 164bps, over the same period.

Trading was dominated by bondholders buying protection on their cash portfolios, said the trader. Although sales figures disappointed, they came against a backdrop of strong overall earnings, which may have stumped further widening. Ford benefited from record earnings from vehicle loans made by its finance arm and its second quarter profit almost tripled in comparison with the same period last year, to USD1.17 billion. Profits at GMAC meanwhile jumped 49% year on year, to USD1.34 billion.

Standard & Poor's rates Ford BBB minus and has it on stable outlook with GMAC at BBB on negative outlook. Scott Sprinzen, analyst in New York, said Ford's performance has not improved since it lowered its rating in November. At the time Sprinzen noted the auto giant's poor profitability and cash flow and projected that only limited improvement would be achievable over the next few years.

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