GM

[gregf]

So, who thinks this is a washout for GM, whoa!

Looking at the bond screen at yahoo is pretty terrifying, yikes!

[HenryTo]

A lot of things happening this morning and today!
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FT.com
GM bonds slump as GE Capital pulls credit
Tuesday March 22, 9:25 am ET
By James Mackintosh in London and Jennifer Hughes in New York

General Motors bonds slid to new lows as investors worried that GE Capital's decision to withdraw a $2bn loan facility for the automaker signalled new potential financing concerns.
GE Capital, a unit of General Electric, has withdrawn the $2bn facility for GM and its suppliers days after credit rating agencies warned that the carmaker could be downgraded to junk bond status.

GM, which lowered its profit outlook last week and said it expected a $2bn operating cash outflow this year, will now provide its own factoring, or early payment, service to its suppliers.

GE's decision move will require GM's finance arm to raise the funding for the service, increasing the pressure on its liquidity.

The carmaker's benchmark bonds were sharply lower in early trading in New York. Yields jumped more than half a percentage point as investors reacted to GE Capital's decision.

The bonds have already fallen heavily in the past week, pushing GM's borrowing costs sharply higher.

However, GM has $23bn of cash and liquid securities in its industrial unit and said none of the remaining $9bn of bank loan facilities available to its car unit had covenants linked to its credit rating.

GM Acceptance Corp, the finance arm that will take over the scheme, has another $24bn of cash and $64bn of committed credit lines. The group has a total of $301bn of secured and unsecured debt outstanding.

One financial analyst said GE Capital's decision to pull out was a bad sign. "It looks as though one of the industrial partners is voting with its feet and getting out before this becomes a bigger issue," he said.

The carmaker said it was coincidence GE Capital had pulled out soon after the credit rating outlook was lowered, fulfilling a clause in the contract allowing GE Capital to cancel immediately. Mark Fischer, director of supply risk management at GM, said: "After GE Capital announced plans to discontinue their early pay programme, it was important for GM to continue to provide this benefit to its suppliers given the current challenges of the automotive industry."

The scheme allowed GM's suppliers to be paid early by GE Capital by accepting a discount on their invoiced amount. GM would then pay GE Capital the full amount owed to the supplier on the final payment date. The carmaker owed GE Capital $1bn at the end of 2004. But the scheme also allowed GM to defer payments to GE Capital, creating another potential line of credit for the carmaker.

GE Capital told GM last year that it would terminate the loan facility at the end of 2005. But its contract allowed it to pull out if the carmaker's credit rating fell to BBB minus, the lowest notch of investment grade, with a negative outlook - as it was last week by Standard & Poor's. Yesterday, GM's bonds continued to slide as investors became convinced that the carmaker would be downgraded to junk.

GE Capital declined to comment.

[HenryTo]

Greg,

GM now looks more like a giant hedge fund to me. Not only are they involved heavily with GMAC, their pension fund is also heavily involved with speculative stuff - such as high yield bonds, emerging market debt, small cap funds, etc., etc. These have all performed well (definitely outpacing the S&P 500) over the last two years. The question is: What happens when the bear market strikes again? What kind of hit will GM take in its earnings report if its pension plan suffers, say, a 10% decline in assets?

Time will tell.

Henry

[gregf]

http://bonds.finance.yahoo.com/z1?b=1&cpl=-1.000000&cpu=-1.000000&mtl=-1&mtu=-1&pr=0&rl=-1&ru=-1&sf=y&so=d&stt=-&tc=1&yl=5.000000&ytl=-1.000000&ytu=-1.000000&yu=10.000000

anyone have any recommendations on how to chart bonds? I know how to get at the t-bonds on quote.com, but, am lost on charting corps.

[HenryTo]

This is pretty significant stuff - one wonders if the domestic auto industry can continue to survive unless there are some drastic changes ahead (especially with South Korean auto companies now exceling and the "threat" of Chinese imports in 2007):

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GM Forecast Hits
Corporate Bonds;
Treasurys Rally

By AGNES T. CRANE and CHRISTINE RICHARD
DOW JONES NEWSWIRES
March 16, 2005 12:53 p.m.

General Motors Corp. delivered a knockout blow to the corporate-bond market Wednesday when the auto maker, whose bonds have been on shaky ground for months, ratcheted down expectations for first-quarter and full-year earnings.

The news sent investors headed for relative safety of government-issued debt, countering a small selloff in Treasurys after strong housing data earlier in the morning set off alarm bells in investors hypersensitive about inflation.

The difference in yield, or risk premium, between GM's 8.375% bond due in 2033 and Treasury bonds widened by about 0.30 percentage point to 4.4 percentage points in the wake of the downbeat news.

"We're not totally surprised by the numbers, but it will make the rating agencies take a closer look," said Cynthia Cole, senior portfolio manager with National City Investment Management in Cleveland.

One ratings agency already chimed in before noon. Standard & Poor's revised GM's ratings outlook to negative, as opposed to placing the rating on watch for a downgrade, as many investors had feared. That helped GM's 8.375% snap back a bit to a spread of 4.55 points over Treasurys.

The wild ride in the corporate-debt market kicked off early in the morning when GM said it now expects to lose$1.50 a share in the first quarter, instead of breaking even as previously forecast. For the year, the auto maker projects adjusted earnings of between $1 and $2 a share, well below its January forecast of adjusted earnings between $4 and $5 a share. GM also said it sees negative operating cash flow of $2 billion for the year, excluding the company's settlement with Fiat and any charges related to restructuring its European unit.

That announcement raised the possibility that GM's corporate debt would be downgraded by Standard & Poor's to "junk" status. GM, one of the largest issuers of corporate bonds, currently has a triple-B-minus credit rating from S&P, just one notch above junk.

This isn't the first time investors have sweat over GM's bonds. When GM issued a disappointing outlook in January, investors worried about an S&P downgrade, which could roil the market as institutional investors who can't own junk sell, flooding that high-yield market and depressing prices. The January warning prompted a selloff, tanking GM bond prices and boosting their yields as buyers sought more payoff for the increased risk.

Wednesday, prospects for a downgrade encouraged investors to buy shorter-dated Treasurys in an effort to park funds in a safe haven until the dust settles, said David Ging, bond market analyst at Credit Suisse First Boston. "If they got downgraded, it would wreak havoc on the corporate bond market," he said.

Ms. Cole said the plunge in GM's debt is already feeding through to the entire corporate-bond market. That's because the hundreds of billions of dollars in auto-sector debt acts as a benchmark for the broader market, she said.

The risk premium on Ford was sharply wider, quoted most recently at 3.3 percentage points to 3.5 points, compared with 2.8 points Tuesday. Auto-parts suppliers were bearing the brunt of the GM's news, too, particularly Delphi Corp., which was downgraded recently to a speculative-grade ranking by S&P, Moody's Investors Service and Fitch Ratings.

Michael Cheah, portfolio manager at AIG SunAmerica Asset Management, said "there's potential for a huge rally in Treasurys" since the GM news came at a time when many Treasury investors are positioned for higher yields rather than lower.

In afternoon trading, the 10-year Treasury note stood at 96 9/32, up 21/32, or $6.56 per $1,000 invested, to yield 4.47. The 30-year bond was up 1 2/32 to 109 4/32, yielding 4.76%. The five-year note was up 14/32 to 99 13/32, yielding 4.13% and the two-year note was up 4/32 to 99 14/32 to yield 3.68%. Bond yields move inversely to prices.

The run-up in Treasurys was somewhat impressive, given that inflation-wary investors only hours earlier were staring down stronger-than-expected data on the housing market. Home-building activity increased for a third straight in February with a 0.5% increase, flying in the face of Wall Street's expectations for a 5% drop.

"This report provides further evidence that activity in the housing market remains very robust," Bear Stearn economists wrote in a note to clients. "There is no sign that Fed interest rate hiking to date has slowed housing activity."

--Aparajita Saha-Bubna

[HenryTo]

Greg,

Could you provide a link to the bond quotes for GM? Thanks!