General Motors Co. (GM)’s subprime-auto lender, which received a subpoena from the Justice Department this month, is offering buyers extra yield on an asset-backed bond deal above one it sold in June.
The company is marketing a $93.4 million portion rated BBB, two steps above junk, to pay investors 170 basis points more than the benchmark interest rate, according to a person with knowledge of the deal, who asked not to be identified because terms aren’t public. That compares with 120 basis points, or 1.2 percentage points, for similar debt issued June 3, according to data compiled by Bloomberg.
The $1 billion transaction, announced last week, marks GM Financial’s first since disclosing that federal prosecutors are seeking documents from the lender on underwriting criteria, origination, warranties and securitization of subprime loans. Santander Consumer USA, the top issuer of asset-backed bonds linked to car buyers with poor credit, received a similar subpoena.
The government is conducting its probe as sales of the securities linked to car loans to people with spotty credit histories surge. Companies have sold $14.2 billion in the bonds this year after $21.5 billion was sold in 2013, the most since a record $27 billion was arranged in 2006, according to Barclays Plc.
Sentiment across credit markets has shifted since June as geopolitical turmoil jolts investors out of complacency brought on by more than five years of near-zero interest rates from the Federal Reserve.
Relative yields on asset-backed securities linked to all kinds of consumer borrowing, including credit-card debt and auto loans, rose as investors took a more cautious approach to buying bonds, according to Wells Fargo & Co. analysts.
“Most of the gains seen in ABS spreads in 2014 were reversed during the first two weeks of August,” the Charlotte, North Carolina-based analysts led by John McElravey wrote in a report today.
The most recent asset-backed deal from a subprime-auto lender was a $225 million offering from First Investors Financial Services Inc. that priced on Aug. 6, Bloomberg data show. The BBB rated portion of its sale yielded 200 basis points over benchmarks.
The top-ranked portion of GM Financial’s current offering is expected to pay about 32 basis points more than benchmarks, compared with 28 basis points on its June sale. First Financial sold comparably rated bonds at a spread of 50 basis points.
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