General Motors euro bonds continued their decline on Monday, after former unit Delphi Corp filed for bankruptcy protection over the weekend, which could drain cash from the struggling car maker.
GM is already suffering from shrinking sales and ballooning costs. The world's largest car maker lost $2.5 billion in its North American operations in the first half of 2005, and under Delphi's 1999 spin-off terms, the car maker may be liable for pension and retiree benefits for Delphi's United Auto Workers union members.
Commerzbank Corporates and Market said in a note to clients that GM's Delphi exposure could run to $10 billion to $11 billion. Delphi is the largest auto parts supplier to both GM and the overall US car market.
"In our view, it is highly unlikely that GM will be able to avoid absorbing any obligation as this interpretation of its obligation would be likely to prompt strike action," analyst Philip Watkins said in the note.
"These are long-term obligations and do not involve material short-term cash obligations," Watkins said.
General Motors' 8.375 percent euro bond due in July 2033 slipped two points to 76.75 percent of face value, after falling half a point earlier Monday.
Its rival Ford Motor Co's 4.875 percent bond due in January 2010 also fell, down half a point at 92.5 percent of face value.
Credit ratings agency Standard & Poor's said earlier this month that Ford was likely to remain a higher-rated company than GM as both automakers' ratings slide deeper into junk territory.
S&P would not rule out cutting GM ratings two more notches to single-B, a level where nearly one in three bonds default over 10-years.
The news also hit GM credit default swaps. Five-year credit protection cost for General Motors rose 45 basis points to 815 basis points on the day, meaning it costs 815,000 euros a year to insure 10 million euros of GM debt against default.
The 5-year CDS of GMAC, GM's finance arm, rose 30 basis points to 540 basis points.
The FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 37.8 basis points more than similarly dated government bonds at 1431 GMT, 0.1 basis points more on the day.
In the asset-backed market, Fidis Retail Italia SpA plans to sell an Italian auto loan-backed bond worth 1.25 billion euros ($1.52 billion), lead managers ABN Amro, Capitalia MCC and UBM said on Monday.
Fidis is 49 percent owned by Italy's Fiat. The industrial group with auto manufacturing operations has an option to increase its ownership until 2008.
UK mortgage lender Platform Funding Ltd, a unit of Britannia Building Society, has set price guidance on a 960 million pound ($1.69 billion) mortgage-backed bond it plans to sell soon, a source close to the deal said on Monday.
J.P. Morgan and Royal Bank of Scotland are managing the bond sale via special purpose vehicle Leek Finance Number 16 Plc.