DBRS Upgrades LT Debt Rating of General Motors Financial Company, Inc., to BBB (low), Trend Stable

DBRS, Inc. (DBRS) has today upgraded the Issuer and Long-Term Debt rating of General Motors Financial Company, Inc. (GMF or the Company) to BBB (low) from BB (high). Concurrently, DBRS has upgraded the Short-Term Instruments rating of GMF to R-3 from R-4. Further, the Guaranteed Senior Unsecured Notes rating of General Motors Financial Company of Canada, Ltd were upgraded to BBB (low) reflecting the guarantee from GMF. The trend on all ratings is Stable. As a result of today’s rating action the ratings of GMF are now equalized with those of its parent, General Motors Company (GM).

The rating action follows the announcement that GM and GMF have entered into a formal support agreement. The equalization of the ratings reflects the strategic importance of GMF to GM reflected in the level of capital and liquidity support provided for in the support agreement to GMF by GM as well as actual support provided by GM to GMF to date. Moreover, the increasing share of GMF earning assets that are GM-related and the strong financial and operational interconnectedness underscores the importance of GMF to GM as a provider of dealer and consumer automotive financing. As a result, DBRS considers the long-term success of GMF, as a captive finance company, to be highly dependent on the success of GM, the parent. As such, DBRS views GMF’s relationship with and reliance on its ultimate parent as a key rating factor; thereby the ratings are linked.

The agreement between GMF and GM outlines the business practices between the two entities. The agreement provides that GM will make a capital contribution to GMF such that GMF maintains its Earning Asset Leverage ratio at or below certain predetermined levels. Moreover, the agreement provides that GM will ensure GMF maintains adequate access to liquidity through a $1.0 billion junior subordinated revolving credit facility as well as designates GMF as a Subsidiary Borrower under its corporate revolver with the capacity to borrow up to $4.0 billion. Importantly, the agreement also sets conditions for certain transactions between GMF and GM, including that lending to affiliates will be done at arms-length terms. The agreement also prohibits GMF from purchasing or holding GM equity, restricts guaranteeing GM debt as well as providing that GMF will not be required by GM to accept credit or residual risk beyond what is accepted in acting in a prudent and commercially reasonable manner.

The Stable rating trend reflects that of its parent, GM, and DBRS’s expectation that GMF’s overall positive trajectory in earnings should continue for the remainder of 2014 and into 2015. Earnings should benefit from GMF’s expanding suite of products and increasing penetration of GM auto sales. Moreover, GMF should continue to benefit from GM’s overall improving sales volumes, which continue to hold up despite recent recall activity, reflecting GM’s positive product momentum and strong U.S. auto industry sales volumes. The Stable trend also considers DBRS’s expectation that GMF will continue make additional progress towards the reducing the presence of secured funding in its overall funding profile.

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), DBRS Criteria: Guarantees and Other Forms of Explicit Support (July 2013) 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: William Schwartz
Initial Rating Date: May 15, 2014
Most Recent Rating Update: May 15, 2014

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