UPDATE: GMAC Bonds Rally On News of Possible Citigroup Bid
01-30-06 09:55 AM EST
(Updates bond and stock prices and includes credit default swap levels)
NEW YORK -(Dow Jones)- Bonds and credit default swaps of General Motors Acceptance Corp., and those of its parent General Motors Co. (GM), are rallying Monday on reports that Citigroup Inc. (C) is in the running to buy a majority stake in GMAC.
According to reports, Citigroup is working with Cerberus Capital Management, the U.S.'s largest hedge fund, to assemble a deal. Analysts have valued a GMAC sale as worth $11.5 billion.
As has been previously reported, Wachovia Corp. and private equity firm Kohlberg Kravis & Roberts Co., are also seriously considering a bid, according to reports citing sources familiar with the matter. Other private equity firms may join in on either bid.
GMAC's 8% bonds due 2031 are up 4.75 points, quoted at 102.25 cents on the dollar, according to MarketAxess, an electronic trading platform for corporate bonds. GM's 6.75% bonds due 2028 are up 2.188 points at 69.44 cents on the dollar.
In the credit default swap market, where investors can bet on an issuer's creditworthiness, five-year protection on GMAC is tighter by 50 basis points to 355 basis points, said one trader. This means an investor who wants to protect $ 10 million of GMAC debt for five years has to pay $355,000 per year. GMAC credit default swap risk premiums hit an intraday tight at 325 basis points, another trader said. The risk premium had moved as low as 325 earlier Monday.
GM credit default swap risk premiums are also tighter at 17.50-18.00 points upfront plus 500 basis points running versus 19.50 points upfront plus 500 basis points running on Friday night, a trader said. This means an investor who wants to protect $10 million of GM debt for five years has to pay $1.775 million initially plus $500,000 each year. Credit default swap risk premiums are quoted in "points upfront" when the underlying issuer's debt is considered risky by the market.
Shares of General Motors are up around 50 cents or 2.1%, quoted at $24.34 per share, in early trade.
A sale of a majority stake in GMAC's financing arm is part of a strategy to return GMAC's credit rating to investment-grade status, which would lower its cost of borrowing - essential to its long-term business plan. The sale would also provide a much-needed cash infusion to parent GM, which is struggling under the weight of a massive cost structure and competitive pressures.
GM last week reported a $4.78 billion fourth quarter loss, or $8.45 cents per share - much worse-than-expected.
GMAC is pretty much the only part of GM that turns a profit...GM is going to die if they cannot get rid of all these pension/health care costs. Once, again Unions killing an American industry because of their unwillingness to accept the inevitable changes in competition globalization brings.
01-30-06 09:55 AM EST
(Updates bond and stock prices and includes credit default swap levels)
NEW YORK -(Dow Jones)- Bonds and credit default swaps of General Motors Acceptance Corp., and those of its parent General Motors Co. (GM), are rallying Monday on reports that Citigroup Inc. (C) is in the running to buy a majority stake in GMAC.
According to reports, Citigroup is working with Cerberus Capital Management, the U.S.'s largest hedge fund, to assemble a deal. Analysts have valued a GMAC sale as worth $11.5 billion.
As has been previously reported, Wachovia Corp. and private equity firm Kohlberg Kravis & Roberts Co., are also seriously considering a bid, according to reports citing sources familiar with the matter. Other private equity firms may join in on either bid.
GMAC's 8% bonds due 2031 are up 4.75 points, quoted at 102.25 cents on the dollar, according to MarketAxess, an electronic trading platform for corporate bonds. GM's 6.75% bonds due 2028 are up 2.188 points at 69.44 cents on the dollar.
In the credit default swap market, where investors can bet on an issuer's creditworthiness, five-year protection on GMAC is tighter by 50 basis points to 355 basis points, said one trader. This means an investor who wants to protect $ 10 million of GMAC debt for five years has to pay $355,000 per year. GMAC credit default swap risk premiums hit an intraday tight at 325 basis points, another trader said. The risk premium had moved as low as 325 earlier Monday.
GM credit default swap risk premiums are also tighter at 17.50-18.00 points upfront plus 500 basis points running versus 19.50 points upfront plus 500 basis points running on Friday night, a trader said. This means an investor who wants to protect $10 million of GM debt for five years has to pay $1.775 million initially plus $500,000 each year. Credit default swap risk premiums are quoted in "points upfront" when the underlying issuer's debt is considered risky by the market.
Shares of General Motors are up around 50 cents or 2.1%, quoted at $24.34 per share, in early trade.
A sale of a majority stake in GMAC's financing arm is part of a strategy to return GMAC's credit rating to investment-grade status, which would lower its cost of borrowing - essential to its long-term business plan. The sale would also provide a much-needed cash infusion to parent GM, which is struggling under the weight of a massive cost structure and competitive pressures.
GM last week reported a $4.78 billion fourth quarter loss, or $8.45 cents per share - much worse-than-expected.
GMAC is pretty much the only part of GM that turns a profit...GM is going to die if they cannot get rid of all these pension/health care costs. Once, again Unions killing an American industry because of their unwillingness to accept the inevitable changes in competition globalization brings.
