Best borrowers 2007: Best ABS: GMAC

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GMAC and its new owner, Cerberus Capital, have used the ABS markets with skill to mitigate the impact of its troubled parent.

Euromoney’s borrower awards 2007
Overall awards
Best sovereign/supranational/agency borrowerBest bank borrower
Best insurance borrowerBest ABS
Best CDO borrowerBest covered bond issuer
Best corporate borrowerBest high-yield/leveraged finance borrower
Latin America regional awards
Best sovereign borrower Best corporate borrower
Best financial borrower
Central & Eastern Europe regional awards
Best sovereign borrower Best corporate borrower
Best financial borrower
Asia regional awards
Best sovereign borrower Best corporate borrower
Best financial borrower
Middle East and northern Africa regional awards
Best borrower

GMAC’s Secured exposure to GM $bln

GMAC’s Unsecured exposure to GM $bln

* Represents $4bln undrawn GM credit line that expired on September 30, 2006

Source: GMAC

There are not many ABS borrowers in the market that have faced the problems that GMAC has encountered – only Ford (another stalwart of the US auto-backed ABS market) can claim that dubious honour. Being credit-linked to an entity such as GM is not much of a selling point. And over the past few months being the 12th-largest sub-prime mortgage originator in the US has not been something to shout too loudly about either. But GMAC is our best ABS borrower this year not only because of the crucial part that ABS played in funding the firm’s acquisition by Cerberus a year ago but also for the way in which the new ownership structure has subsequently been exploited in its use of ABS as a funding tool.

The acquisition of GMAC by Cerberus was funded via a $25 billion package arranged by Citi. The $10 billion securitization that was part of the deal included a commitment by Citi to purchase $4 billion of unrated notes backed by collateral that GMAC would otherwise have been unable to securitize. The importance of this deal in the overall success of the acquisition should not be underestimated. The assets backing the notes included auto instalment sales contracts; auto leases and balloon loans – none of which would have been eligible for a public securitization.

A transformed credit outlook

Before the acquisition, GMAC’s recurring challenge in the ABS market was its credit linkage to GM. The Cerberus acquisition (see Deals that changed the market in 2006: Cerberus FIM Investors’ acquisition of GMACEuromoney, February 2007) not only transformed GMAC as a prospective credit but also changed the way in which it could approach the ABS market. Just one example: before 2006 all GMAC securitizations in the US included an amortization trigger in the event of a GM Chapter 11 bankruptcy. But wholesale securitizations launched by GMAC since February this year do not include the trigger – it having been rendered unnecessary by GMAC’s new status. The firm has, however, completed a $6 billion bridge funding facility to provide liquidity protection for older deals (with triggers) and to help manage early amortization of those deals in the event that GM does declare bankruptcy. These deals, together with the $10 billion acquisition securitization, have been crucial in enabling GMAC to mitigate rating agency concerns and maintain its BB+/Ba1 rating. Thus, while the deals might not have been structurally groundbreaking, GMAC has illustrated just how pragmatic use of the ABS market can achieve significant ends for a borrower that was facing serious difficulties. The GMAC experience will certainly be invaluable to Cerberus as it coordinates a $60 billion debt package to fund its recently announced acquisition of the Chrysler Group. Indeed, an ABS issue of as much as $40 billion is expected to accompany the latest acquisition.

GMAC’s retail automotive securitizations are issued through its Capital Auto Receivables Asset Trusts (Carat) programme and its wholesale automotive securitizations through Superior Wholesale Inventory Financing Trusts (Swift). "The company has been sourcing secured funding since the mid-1980s and has dramatically grown its capability in this area," a GMAC spokesman tells Euromoney. "In addition to the traditional public and private securitization structures, the company has been at the forefront of the development of new markets such as multi-year committed funding arrangements, which have monetized pools of retail automotive contracts in whole-loan form with separate transactions totaling $10 billion to $20 billion a year."

The firm came to the market in December with a $2.9 billion Carat deal via ABN Amro, Barcap, BNP Paribas and HSBC and in January with a $1.6 billion Swift dealer floorplan issue arranged by Morgan Stanley and Banc of America. It came back in April with another $1.9 billion Carat deal via ABN Amro, Barclays, Deutsche Bank and RBS Greenwich. Demand for all these issues was robust, and liquidity in the GMAC name remains high. The $4 billion deal cemented with Citi as part of the acquisition has removed asset risk from the balance sheet and the firm has a reputation for consistently good collateral backing its deals. It has achieved consistently tight pricing on these issues despite the lingering headline risk of GM.

In addition to the auto securitization business, GMAC is a voracious securitizer of home loans as well via its GMAC-RFC unit. Like all issuers in this market it has and will face difficulties with rising defaults from its sub-prime business. GMAC’s Residential Capital unit wrote sub-prime loans totalling $21.2 billion in 2006 and $25.3 billion in 2005 – the weakest vintages. But the firm has a reputation for rigorous underwriting standards and has been highly successful in exporting its model internationally. "Building on its past successes, GMAC is expected to remain one of the major participants in the secured funding markets as it continues to expand its global capabilities in this area," says the spokesman.