General Motors' Long-Term Bonds Could Yield 6.5 Percent, Credit Swaps Show
Stock Chart for General Motors Co (GM)
General Motors Co. may be able to issue long-term bonds at a yield of about 6.5 percent, the first credit-default swaps on the automaker’s debt since its bankruptcy show.
Contracts protecting GM’s bonds are at a mid-price of 338 basis points from 345 yesterday, according to Barclays Capital. That compares with swaps on Ford Motor Co. at a mid-price of 285 basis points at 10:58 a.m. in New York, Barclays data show.
“Based on CDS levels, the bonds you’d expect to come at a slightly heftier yield to where Ford paper comes,” said Michael Kraft, senior portfolio manager at Crimson Capital Trading LLC in New York. He estimates that GM may be able to sell debt that pays 50 basis points more than Ford bonds of the same maturity.
That would mean a yield of about 6.25 percent on 5-year notes and 6.5 percent on 10-year debt, Kraft said. The yield on Ford’s $1.25 billion of 8.125 percent bonds due in January 2020 climbed above 6 percent today. New York-based Moody’s Investors Service rates both companies Ba2, two steps below investment grade.
GM Chief Financial Officer Chris Liddell said Nov. 18 that the company may offer a “relatively small” bond issue. Liddell also said in the interview on CNBC “there is no reason” why GM “can’t get back to being a strong investment grade.”
Noreen Pratscher, a spokeswoman for GM, said the company doesn’t discuss bond offerings before issuing a regulatory filing for the sale.
Yesterday credit swaps on GM were quoted for the first time since the Detroit-based automaker’s bankruptcy after nearly a century on the New York Stock Exchange.
General Motors Corp., as the company was formerly known, filed for Chapter 11 bankruptcy protection on June 1, 2009, after the failure of New York-based Lehman Brothers Holdings Inc. in September 2008 froze credit markets and helped cause the longest recession since the Great Depression.
GM paid $2.1 billion to taxpayers today, completing the repurchase of shares issued under a U.S. government bailout. The transaction brings the total that taxpayers received in return for their investment in GM to more than $23 billion, the Treasury Department said in a statement. The company raised more than $20 billion in its return to public stock trading Nov. 18.
“It’s a healthy thing that you’ve got an auto sector again,” Kraft said.
Dearborn, Michigan-based Ford’s 8.125 percent bonds fell 1 cent to 114.5 cents on the dollar as of 11:23 a.m. in New York, according to Trace, the bond-pricing reporting system of the Financial Industry Regulatory Authority. The debt has climbed from 97 cents on Feb. 10, Trace data show.
Credit swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.
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