GMAC Bonds Continue Slide As Buyers Walk Away

The bonds of General Motors Acceptance Corp. have dropped to their lowest levels in two months after two potential buyers stepped away from the table.

  • 09 Dec 2005
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The bonds of General Motors Acceptance Corp. have dropped to their lowest levels in two months after two potential buyers stepped away from the table. Wells Fargo and Bank of America, two of the leading suitors mentioned to buy a large stake in GMAC, said within a week of each other that they no longer had an interest in the subsidiary of General Motors, thus leading to the drop off in the price of the bonds.

Since the week of Oct. 24, bonds of GMAC have steadily declined. The most precipitous slide has been in longer dated bonds of GMAC, those maturing in 2015 or later. Those bonds have fallen from trading in the 90-100 range to a range of 75-85 last week, their lowest in the period. Last week, one of GMAC's shorter dated bonds, GMAC 6.03 July '08, was the market's biggest weekly decliner. The bond's spread widened to 627, a change of 101 basis points from the previous week, according to Markit Group (see weekly advancers/decliners, page 6).

With Wells Fargo and B of A losing interest in GMAC there seems to be mixed reaction as to how GM will proceed. "I don't think that GM is going to be able to spin off GMAC now," said one portfolio manager. "They (Wells Fargo and B of A) were clearly the most interested parties. With them out of it, I don't see where GM turns. This doesn't mean that owners of GMAC are going to sell it (GMAC's debt) off. I don't think GM has much value, but there is the possibility GMAC could return to investment grade," he said, citing a report by Merrill Lynch.

While the market debates the merits of GM and GMAC bonds, General Motors has claimed it will continue to shop GMAC. "Discussions are continuing with interested parties," a GM spokeswoman said.

Calls to GMAC were not returned. Calls to Wells Fargo and B of A were also not returned.

  • 09 Dec 2005

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1 BNP Paribas 14,443 29 18.07
2 Bank of America Merrill Lynch (BAML) 8,264 27 10.34
3 Lloyds Bank 7,329 24 9.17
4 Citi 6,748 19 8.44
5 JP Morgan 5,220 8 6.53

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1 Citi 117,261.12 337 11.09%
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3 JPMorgan 92,612.23 269 8.76%
4 Wells Fargo Securities 82,597.19 239 7.81%
5 Credit Suisse 69,442.99 183 6.57%