GMAC Financial, now Ally Financial, is a wonderful example of a company who is making it's best effort to stabilize after a large US bailout.
Ally Financial, with liabilities of over $200B and a significant portion with dubious quality at the time of reckoning, received a total $20B infusion from the US Treasury in March of 2010 through the conversion preferred shares into common equity. With that, the Treasury essentially recapitalized the whole company and at the end of Q1 2010 had $14.8B in cash and cash equivalents. With stimulus across the world, Ally has been able to write up assets and unload risky assets from their balance sheet.
To that end, Ally Financial sold off it's European mortgage assets (1) but has continued exposure to Europe in auto loans and other areas.
This month, Ally Financial has attempted to securitize mortgage securities again by offering a senior not on a $166m mortgage pool with %25 credit enhancement.(2) This means that the pool of low LTV loans and prime borrowers can withstand 25% losses before the senior bond is at risk. The senior note was graded A by Moody's. The auction will not occur until next month.
Overall, Ally Financial is making great strides to reduce risk and return tradtional banking practices. It is still yet to be determined whether the company can stand on it's own. But due to the critical function the company performs in supporting the American auto industry, the implicit support from the US government will provide significant credit protection for all investors.
The author is long GKM until maturity.
(1)"Residential Capital (ResCap), the mortgage subsidiary of GMAC Financial Services, is selling its European mortgage assets and businesses to affiliates of alternative asset manager Fortress Investment Group (FIG: 3.37 -3.44%).
The transaction moves 10% of ResCap's total assets as of year-end 2009 — and 40% of total assets when adjusted for the required Financial Accounting Standard (FAS) 167 treatment of off-balance-sheet securitization — into Fortress ownership.
ResCap said the assets in the transaction are valued at levels established in Q4 2009, and it expects no material gain or loss from the transaction. With this deal, GMAC is essential out of the European market."
(2) "Moody's Investors Service assigned provisional ratings to a senior note issued by GMACM Mortgage Loan Trust Series 2010-1, a new residential mortgage-backed deal.
The securitization is sponsored by General Motors Acceptance Corp. Mortgage (GMACM). According to a source close to the deal, GMACM Mortgage Loan Trust 2010-1 priced on Tuesday.
Moody's has assigned a provisional single-A 2 status to one senior note with an original stated value of $166.35m. This note is supported by a subordinate certificate with an original stated value of $55.45m, which Moody's did not rate.
The transaction is backed by 1,981 loans with a combined unpaid principal balance of $222m originated and serviced by GMAC. Loans insured by the Federal Housing Administration (FHA) make up 97% of the pool, with the remainder insured by the US Department of Veterans Affairs (VA)."
Showing posts with label GMAC Long. Show all posts
Showing posts with label GMAC Long. Show all posts
Thursday, June 24, 2010
Thursday, May 6, 2010
Ignore the credit raters! Buy GMAC Senior Debt
The author is adding another safe investment with a US government "put" to support the security. The intent will be to hold until maturity.
The whole investment logic for this one is supported by a quote from Bill Gross, PIMCO, in his May Investment Outlook
“Still, as future bond issuers belly up to the bar with their rating agency seals of approval, it is incumbent on the buying public to treat those IDs with a healthy skepticism. Firms such as PIMCO with large credit staffs of their own can bypass, anticipate and front run all three, benefiting from their timidity and lack of common sense. Take these recent examples for instance: S&P just this past week downgraded Spain “one notch” to AA from AA+, cautioning that they could face another downgrade if they weren’t careful. Oooh – so tough! And believe it or not, Moody’s and Fitch still have them as AAAs. Here’s a country with 20% unemployment, a recent current account deficit of 10%, that has defaulted 13 times in the past two centuries, whose bonds are already trading at Baa levels, and whose fate is increasingly dependent on the kindness of the EU and IMF to bail them out. Some AAA!
Now let’s go the other way. GMAC, that only too recently near-bankrupt finance company, carries recently upgraded B ratings from the rating services. Profiles in courage for all three, I say! I mean the U.S. government has injected $20 billion of capital and owns 65% of the company. It’s the auto industry’s equivalent of FNMA and FHLMC, except those are AAA and GMAC is B with a “positive outlook!” For that, you can buy a GMAC two-year bond at 6½% (8% with what are called “smart notes” that Investment Outlook readers can buy through their broker), while you receive only 1.2% at Fannie and Freddie. Vive la différence!”
The author of this blog has found something comparable to purchase…
NYSE: GKM – GMAC Senior Debt, 7.25% yield at par ($25), currently priced at $20.85 (8.69% yield to maturity) – Callable any time after 2008 and due 2033
NYSE: GJM – GMAC Senior Debt, 7.35% yield at par ($25), currently priced at $21.02 (8.69% yield to maturity) – Callable any time after 2008 and due 2033
I am going to buy a little of both of the above for myself right now. FYI: When they retire the debt, they normally start with the higher yielding one first.
Bought GKM at 20.96 on May 5th and sleeping well.
The whole investment logic for this one is supported by a quote from Bill Gross, PIMCO, in his May Investment Outlook
“Still, as future bond issuers belly up to the bar with their rating agency seals of approval, it is incumbent on the buying public to treat those IDs with a healthy skepticism. Firms such as PIMCO with large credit staffs of their own can bypass, anticipate and front run all three, benefiting from their timidity and lack of common sense. Take these recent examples for instance: S&P just this past week downgraded Spain “one notch” to AA from AA+, cautioning that they could face another downgrade if they weren’t careful. Oooh – so tough! And believe it or not, Moody’s and Fitch still have them as AAAs. Here’s a country with 20% unemployment, a recent current account deficit of 10%, that has defaulted 13 times in the past two centuries, whose bonds are already trading at Baa levels, and whose fate is increasingly dependent on the kindness of the EU and IMF to bail them out. Some AAA!
Now let’s go the other way. GMAC, that only too recently near-bankrupt finance company, carries recently upgraded B ratings from the rating services. Profiles in courage for all three, I say! I mean the U.S. government has injected $20 billion of capital and owns 65% of the company. It’s the auto industry’s equivalent of FNMA and FHLMC, except those are AAA and GMAC is B with a “positive outlook!” For that, you can buy a GMAC two-year bond at 6½% (8% with what are called “smart notes” that Investment Outlook readers can buy through their broker), while you receive only 1.2% at Fannie and Freddie. Vive la différence!”
The author of this blog has found something comparable to purchase…
NYSE: GKM – GMAC Senior Debt, 7.25% yield at par ($25), currently priced at $20.85 (8.69% yield to maturity) – Callable any time after 2008 and due 2033
NYSE: GJM – GMAC Senior Debt, 7.35% yield at par ($25), currently priced at $21.02 (8.69% yield to maturity) – Callable any time after 2008 and due 2033
I am going to buy a little of both of the above for myself right now. FYI: When they retire the debt, they normally start with the higher yielding one first.
Bought GKM at 20.96 on May 5th and sleeping well.
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