DBRS Assigns LT Debt Rating of BB (high) to General Motors Financial Company, Inc., Trend Stable

DBRS, Inc. (DBRS) today has assigned an Issuer and Senior Unsecured Debt rating of BB (high) to General Motors Financial Company, Inc. (GMF or the Company). Concurrently, DBRS assigned a Short-Term Instruments rating of R-4. The trend on all ratings is Stable.

The ratings of GMF are placed one notch below that of its parent, General Motors Company (GM), reflecting the weaker stand-alone credit profile than that of its parent and the lack of an explicit guarantee or support agreement from GM. The one notch differential in the ratings also considers GMF’s ownership, the increasing interconnectedness between GMF and GM, and the strengthening strategic importance of GMF to GM. Following the acquisition of Ally Financial’s international operations (IO), GM sales constitute the majority of GMF originations and GM-related revenue has increased as a percentage of GMF total revenues. Moreover, upon all of the IO acquisition closing (China JV still pending) GMF’s operating footprint will cover approximately 80% of GM’s global sales, including significant penetration of GM international sales and dealer financing.

The ratings also consider the financial support provided by GM to GMF, including $2.0 billion of capital, of which $1.3 billion has been provided, to maintain pro-forma leverage ratios at appropriate levels following the closing of the IO acquisition. GM provides an intercompany credit facility totaling $600 million to GMF and has listed GMF as a co-borrower on GM’s committed secured corporate revolving facility. Further, there is a tax sharing agreement in place between GM and GMF that allows GMF to defer tax payments for up to four years from their original due date, with the total deferral amount not to exceed $1.0 billion. As a result of these considerations, DBRS sees the overall long-term success of GMF, as a captive finance company, as highly dependent on the success of GM, the parent. As such, DBRS views GMF’s increasing interconnectedness with and dependence on its parent as a key rating factor, thereby the ratings are closely linked. Ratings would be equalized with those of its parent should a support agreement from GM or an explicit guarantee of GMF’s corporate debt by GM be put in place.

The Stable rating trend reflects that of the parent and DBRS’s expectation that GMF’s overall solid level of earnings will continue for the remainder of 2014. Earnings should benefit from GMF’s increasing penetration of GM auto sales volumes and GM’s overall improving sales volumes, reflecting GM’s positive product momentum and strong U.S. auto sales volumes. The Stable trend also considers DBRS’s expectation that GMF will continue to enjoy good access to the capital markets at reasonable costs and make additional progress towards the rebalancing of the funding profile to be less dependent on secured sources of funding. As a result of its ownership by GM, GMF ratings are likely to move in tandem with those of its parent.

In addition to the parent ratings, the ratings of GMF consider the overall strengthening and evolving franchise of GMF. GMF has a well-established presence in the subprime auto lending market and since its acquisition by GM has launched a number of products to broaden its customer base and deepen GM dealer relationships. The ratings also consider the improving asset quality of the portfolio as GMF originations shift to a more prime lending focus, especially with the IO acquisition as well as the improving funding profile. Asset encumbrance is gradually declining and DBRS expects that this trend will continue over the medium-term. Moreover, the ratings consider the favorable leverage and capital levels of GMF compared to its captive peers. GMF targets a leverage ratio (earning assets-to-tangible net worth) of 6.0x to 8.0x. DBRS expects leverage will increase over the medium-term as the earning asset balance grows with the improving penetration of GM sales but that leverage will remain within the targeted range.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal applicable methodology is Rating Captive Finance Companies (June 2010). Other methodologies used include Rating Finance Companies Operating in the United States (May 2008), Rating Auto Finance Companies Operating in the United States (May 2008), and DBRS Criteria: Rating Holding Companies and Their Subsidiaries (January 2014). All DBRS methodologies and criteria can be found on DBRS website under Methodologies.

[Amended on February 18, 2015 to reflect actual methodologies used.]

The primary sources of information used for this rating include company documents and SNL Financial. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

Lead Analyst: David Laterza
Rating Committee Chair: Roger Lister
Initial Rating Date: N.A.
Most Recent Rating Update: N.A.

For additional information on this rating, please refer to the linking document under Related Research.