In a low key deal, General Motors Financial Company (GM) tapped the debt market for $1 billion in five year notes, giving credit investors their first exposure to the company since their bankruptcy a little over three years ago.
Recall that the original General Motors Acceptance Corp was sold to Cerberus in 2006 and renamed Ally Financial, which was then bailed out and is majority owned by the US government. Since then, GM bought sub-prime lender Americredit (for those potential GM buyers that couldn't get credit elsewhere) and renamed it GM Financial. Enough of the history less, here are the details of the offering:
|Issuer||General Motors Financial Company, Inc|
|Maturity||August 15, 2017|
|Guarantor||AmeriCredit Financial Services, Inc|
|Type||144a Senior unsecured notes (Reg S)|
|Change of Control||$101|
|Use of Proceeds||General corporate purposes, including, but not limited to, possible acquisitions|
Note that these are 144a Reg S, which means that they have not been registered with the SEC. That said, at some point they will be exchanged for registered notes. In other words, individuals cannot yet buy them.
- Liens. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, create, incur, assume or otherwise cause or suffer to exist or become effective any Lien of any kind (other than Permitted Liens) upon any of their property or assets, now owned or hereafter acquired, unless all payments due under this Indenture and the Notes are secured on an equal and ratable basis with the obligations so secured until such time as such obligations are no longer secured by a Lien.
- Merger, Consolidation, or Sale of Assets. The company may not consolidate or merge with another company unless the company is the surviving entity or the acquiring company assumes GM Financial's obligations under the notes.
General Motors Financial Company ("GMFC"), Inc is an auto finance company specializing in purchasing retail automobile installment sales contracts originated by franchised and select independent dealers in connection with the sale of used and new automobiles. The company was acquired by General Motors Company on October 1, 2010. In December 2010, GMFC began offering a lease product through GM franchised dealerships and, in April 2012, launched a commercial lending platform to further support the GM dealer relationships. The company generates revenue and cash flows primarily through the purchase, retention, subsequent securitization and servicing of finance contracts and origination and retention of lease contracts.
As liquidity is the life blood of a finance company, the following is an overview of General Motors Financial Company's liquidity sources (source 10-Q).
General Motors Financial Company has the following bank lines available to them:
The company primarily uses securitization financing ($8.6B out of $9.9B in consumer finance receivables) in order to finance their lending activities. The following is a summary of their Q2 2012 securitization activity:
Finally, there is the cash, unencumbered assets and credit line from General Motors:
GMFC has ample liquidity available to them, which should continue to allow them to grow their consumer and commercial businesses.
Bottom Line: At 450bps above the five year treasury, I find this issue attractive. The company has done a decent job managing their receivables and controlling defaults, delinquencies and deferrals. I fully expect that General Motors Financial Company will continue to grow their asset base and is a likely bidder for Ally Financial's international business. I would also assume that GMFC might not renew their agreement with Ally which has Ally loan money to prime GM customers in the United States in 2013. All GM has to do is look at the contribution that Ford's (F) credit company adds to the bottom line to understand the vital nature of a viable (and investment grade) financing subsidiary.
Disclosure: I am long F.
Additional disclosure: This article is for informational purposes only, it is not a recommendation to buy or sell any security and is strictly the opinion of Rubicon Associates LLC. Every investor is strongly encouraged to do their own research prior to investing.