Fitch Places GM Financial on Watch Positive Upon Announced Acquisition of
Ally's Intl Operations
NEW YORK -- November 28, 2012
Fitch Ratings has placed General Motors Financial Company, Inc.'s (GMF) 'BB'
long-term Issuer Default Rating (IDR) on Rating Watch Positive, following the
company's announcement on Nov. 21, 2012, that it has entered into an agreement
with Ally Financial Inc. (Ally) to acquire Ally's international operations
(IO) in Latin American, Europe, and China for $4.2 billion in order to provide
an alternative source of financing to General Motors Company's (GM) consumers
and dealers on a global basis.
The Rating Watch Positive reflects Fitch's view that, following the successful
close of the Ally IO acquisition, GMF will be a core subsidiary to its parent,
GM, as defined in Fitch's criteria 'Rating FI Subsidiaries and Holding
Companies,' dated Aug. 10, 2012. As a result of being viewed as core
subsidiary, Fitch would expect to resolve the Rating Watch and align GMF's
ratings with those of GM (LT IDR: 'BB+', Rating Outlook Stable), subject to
regulatory approval and anticipated transaction closing, which is expected to
be in stages through mid-2013.
The acquisition will increase GM sales coverage, as defined as the percentage
of GM unit sales in markets where GMF has presence compared to total GM unit
sales, to approximately 80% compared to the current 30%.
Fitch believes the acquisition will be funded through cash on the balance
sheet, drawings on the new inter-company bank facility and unsecured debt
issuances. Additionally, GM is expected to inject approximately $2 billion of
cash into GMF to increase its equity and maintain an appropriate pro forma
capital structure. The acquisition is expected to double GMF's assets to
approximately $33 billion while its liabilities, including consolidated debt,
will increase to approximately $27 billion.
Historically, GMF has had an articulated long-term leverage target, as defined
as earning assets to tangible equity, of 6.0 times (x) - 8.0x. While the
company has been operating below its target, Fitch believes leverage will be
within the articulated range following the Ally purchase.
Rating Drivers and Sensitivities
Resolution of the Rating Watch Positive will be evaluated in the context of
the success of the closing and integration of the Ally IO assets (expected to
close in stages through mid-2013) and GM's $2 billion cash injection into GMF.
The ratings could be upgraded and equalized to those of its parent, based on
Fitch's belief that the acquisition makes GMF a core subsidiary to GM. The
equalization of the ratings would be supported by GM assets accounting for a
larger portion of GMF's total portfolio, an increase in GM-related earnings at
GMF, the $2 billion cash injection from the parent, and GMF's ability to
borrow on the new GM bank facility.
Conversely, the ratings could be affirmed in the event GMF is unable to
successfully close and integrate the Ally assets, the parent does not provide
additional equity to maintain adequate capitalization at GMF, and/or GMF is
unable to tap the GM revolver for additional liquidity.
Fitch has placed the following ratings on Rating Watch Positive:
General Motors Financial Company
--Long-term IDR of 'BB';
--Senior Unsecured of 'BB'.
Additional information is available at 'www.fitchratings.com'. The ratings
above were solicited by, or on behalf of, the issuer, and therefore, Fitch has
been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--Global Financial Institutions Rating Criteria (Aug. 15, 2012);
--Finance and Leasing Companies Criteria (Dec. 12, 2011);
--Rating FI Subsidiaries and Holding Companies (Aug. 10, 2012).
Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
Finance and Leasing Companies Criteria
Rating FI Subsidiaries and Holding Companies
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Katherine Hughes, +1-312-368-3123
70 West Madison Street
Chicago, IL 60602
Mohak Rao, CFA, +1-212-908-0559
Nathan Flanders, +1-212-908-0827
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