GM, GMAC, and Ford Bondholder Update

Joseph Meyer
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GM Bonds

GMAC Bonds and Ford Bonds Now Prime.

In early May, US regulators told GMAC, General Motors’ finance arm, to hold smaller equity cushions than expected. That followed cutting the operational risk of GMAC to one notch above junk last month.

The result means GMAC must now set aside more capital for its investments in fixed income bonds. It also indicates that banks are more cautious with lending to automakers.

In February, Moody’s cut its ratings on GMAC and Ford debt to one notch above non-investment grade.

Ford Bonds

GMAC Bonds

GMAC Smartnotes

General Motors (GM), Ally Bank (NYSE:GAB), and Ford Motor Co. (NYSE:F) are all in the news with news about the bailout that saved the automakers.

In his new article about the companies “GM, GMAC, and Ford Bondholders”, Jody Shenn, the managing partner at OfTwoMinds Research, looks at what happened to GM, GMAC, and Ford bondholders and where he thinks the auto industry is headed.

Shenn tells us that GMAC, which used to be GM’s mortgage and GM’s auto finance arm, was separated from its parent company. The federal government had to take it over during the bailout to make sure they honored their debt contracts.

The federal government’s bailout forced Ford and GM to pay off its bondholders faster than they wanted to. Ford paid off its old debt early because it had cash. The government wanted to make sure that when GM and GMAC paid off its debt, workers, bondholders, and stockholders were taken care of before the government got paid back. Shenn tells us that the government is still providing steering and tax breaks to GM and Ford, but there are no direct payments.