Bond Investors Snap Up GM Finance Unit Offering

Bond investors came out in droves Tuesday for a piece of the new private note offering from Residential Capital Corp., the new, separate home mortgage unit of General Motors Corp.’s finance unit, General Motors Acceptance Corp.

The $4-billion bond deal, which garnered demand of more than $17 billion, provided the high-grade bond market with much to cheer about.

Investors gave the deal their stamp of approval, despite the borrower’s ties to recently junked GM.

“The deal will help market sentiment in the short-run, and that bodes well for spreads,” said Tim Compan, corporate bond portfolio manager at Allegiant Asset Management.

The offering was split in three parts -- a $1-billion two-year floating-rate note, a $2.5-billion offering of five-year notes with a coupon of 6.375%, and $500 million of 10-year notes with a coupon of 6.875%.

The bonds’ coupons step up if Residential Capital’s credit ratings fall to speculative grade, also known as junk. It’s currently rated investment-grade by all three ratings companies.

General Motors Acceptance Corp. relies heavily on the debt markets for its financing needs, and speculative-grade ratings lead to higher debt-financing costs because of the perceived heightened risk.