GM Debt Protection Costs Hit Record

NEW YORK (Reuters) – The cost of insuring the debt of General Motors Corp (GM.N: Quote, Profile, Research, Stock Buzz) against default hit a record high on Monday in the wake of a $15.5 billion quarterly loss reported by the automaker on Friday.

GM’s benchmark long bonds were steady, holding close to record lowsset on Friday after the automaker reported its second-quarter loss, thethird-largest in its 100-year history.

"GM credit spreads continue to be priced on the basis that justabout everything will keep going wrong," Glenn Reynolds, senior analystat fixed-income research service CreditSights, said in a report onMonday.

"The price action has now blown past the Chrysler meltdown of thesecond half of 1990" and is reminiscent of the bursting of the tech andtelecommunications bubble, he said.

GM’s five-year credit default swaps rose to 47.5 percent of the suminsured as an upfront payment from 46.5 percent at Friday’s close, plus500 basis points in annual payments, according to Phoenix PartnersGroup. This means it would cost $4.75 million to insure $10 million indebt for five years, plus $500,000 a year.

GM’s benchmark bonds with an 8.375 percent coupon due in 2033 wereunchanged at 47.5 cents on the dollar, according to MarketAxess. Theyhad hit an all-time low of 46 cents on Friday.

Its 7.2 percent notes due in 2011 fell to 60.5 cents on the dollar on Monday from 62.25 cents on Friday.

General Motors’ quarterly loss came as its North American sales fell20 percent and plunging prices for SUVs prompted deep charges for itsauto finance business.

The plunge in auto bonds took a toll on the high-yield market, whichposted a 0.32 percent total return loss on Friday alone, according todata from Merrill Lynch. Overall yields on junk bonds rose to 11.5percent, the highest since 2003.

"Significant auto sector dislocation could become the catalyst forbroader weakness in the high-yield market," Bank of America said in areport.

(Reporting by Dena Aubin; Editing by Kenneth Barry)