In the attached publication we detail our fundamental credit view for US Automakers and offer relative value trade ideas.
US Autos – Recommendation: Underweight, wait for significant UAW-driven widening for entry
- We hold a positive view on Stellantis due to wide spreads vs. BBB comps and repeated strong execution on cost control, which has led to best-in-class margins
- We hold a neutral view on GM balancing its attractive spreads vs. BBB comps, exposure to the resilient US auto market and declining leverage with spreads tight vs. peer STLA and limited immediate positive catalysts
- We hold a negative view on Ford 10Y+ spreads for 2H23, as we see the outcome of UAW labour negotiations delaying an upgrade to full IG to mid-FY24, and note spreads are tight to peer GM (already pricing a BBB- rating). However, we note technical flows will be highly supportive as Ford receives a 2nd upgrade to IG by S&P by 1H24 and see value in <7Y issues
US Autos - Relative Value Trade Ideas:
- Buy GM 5.8 2028s +38bp back from STLA, we prefer the front end through UAW negotiations and see GM FV 5-10bp back
- Buy STLA USD 6.45 2032s vs. GM 6.4 2033s, to gain exposure to STLA’s ratings momentum, superior margin and leverage profile, while picking up a 4bp spread and shortening one year
- Sell F 6.1 2032s vs. GM 2033s and F 5.291 2046s vs. GM 5.95 2049s, as Ford is trading tight to GM on a YTC basis, pricing a full IG upgrade with potential hurdles ahead
- Sell GM 5.95 2049s vs. GM 6.4 2033s tactically, to bet on 10-20bp spread widening + steepening through 2H23, as UAW labour negotiations play out in a similar fashion to the way they did in 2019