Non
Rating Action:
Moody's places General Motors Financial Company's ratings on review for downgrade, following similar action on the ratings for its parent
25 Mar 2020
New York, March 25, 2020 -- Moody's Investors Service, ("Moody's") placed the ratings for General Motors Financial Company, Inc. (GMF) and its subsidiaries, including the Baa3 long-term senior unsecured and the Prime-3 short-term ratings, on review for downgrade.
The rating action follows a similar action on the ratings for GMF's ultimate parent company General Motors Company (GM, Baa3 senior unsecured, review for downgrade). Please see separate press release dated 25 March 2020.
The rapid and widening spread of the coronavirus outbreak, the deteriorating global economic outlook and falling oil prices are creating a severe and extensive credit shock across many sectors, regions and markets. The current situation as well as the significant rise in used car prices over the last decade place pressure on the credit strengths of the auto captive sector, on which we maintain a negative outlook. Moody's believes that delinquency rates, loan defaults and lease residual realization trends will worsen in the next 12 months. We note, however, that US auto captive finance companies are moderately well positioned to weather a level of shock in the system absent meaningful declines in used car prices and a rapid and unexpected deterioration of liquidity at the parent level.
In its analysis Moody's incorporates the strategic importance of captives to their auto affiliates due to their ability to stimulate auto sales. Auto finance captives are expected to provide a consistent source of purchase financing to dealers and consumers, thereby aiding the auto manufacturers in meeting their sales objectives. The reliance of the auto finance captives on their automotive parents for liquidity remains high, although an important feature of the auto finance companies is their ultimate reliance on consumers and dealers to regularly make monthly payments on their loans or leases thereby partially reducing debt outstanding on the asset-backed securitization pools used by the auto captives for a portion of the loans and leases.
To the extent that capital markets with respect to the unsecured and secured funding contract, captives will have to reduce the new origination volumes although it will be to the disadvantage of the parent as the parent aims to originate new sales once the environment stabilizes.
