Editor’s letter



Standard & Poor’s autos downgrades came at last in early May, yet it could still be some time before the market fully digests the arrival of General Motors and Ford debt into high yield. Though uncertainty regarding the timing of S&P’s move is finally at an end, confusion still persists over the rating agency’s remarks on the two financing units, as further twists and turns appear in the ongoing saga.

Some suggest that S&P’s comments left much unsaid. The general gist is that the financing companies could be better or worse off and their ratings higher or lower. So, not much help there then.

The move has also made a mockery of the upcoming change to the ratings methodology used by Lehman Brothers’ indices. To recap: under the current rules, S&P’s downgrades force GM and Ford out of the bank’s high-grade index at the end of this month. But with the addition of Fitch’s ratings in Lehman’s indices from July 1 - and assuming no further rating actions - investor portfolios could witness the bizarre sight of $90 billion of autos debt yo-yoing straight back into the investment-grade index in just one month’s time.

It is less straightforward trying to gauge where the auto paper will end up eventually. Estimates show that approximately €19 billion of Ford and GM euro-denominated debt will be eligible for the high-yield indices. However, with constraints of 3% on any one name, benchmarked portfolios will only siphon off a meagre €2 billion. That leaves €17 billion of debt trawling the Street looking for a home. A sombre thought indeed.

Nikki Marmery
+44 (0)20 7484 9925

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