General Motors – which on Monday announced the sale of 51% of its auto financing arm GMAC to Cerberus Capital Management – should have made getting an investment-grade rating for GMAC mandatory, according to UBS, The Associated Press reported.

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“To us, the reason to sell a controlling stake in GMAC was to improve its prospects,” UBS analyst Rob Hinchliffe reportedly wrote in a Tuesday research note.


“Without an investment grade credit rating, GMAC’s access to competitive funds deteriorated to the point where it was shrinking. We’re not sure that this Cerberus-led consortium improves GMAC’s prospects.”


AP noted that securing an investment-grade rating would grant GM better access to capital markets but three rating agencies – Standard & Poor’s, Moody’s, and Fitch – all reiterated that GMAC would remain junk-rated. GM expects to receive $US14.1bn cash from the sale.


At January’s Detroit motor Show, GM said a GMAC partner would help secure an investment-grade rating, expand balance sheet capacity, improve competitive funding, and “generate operational synergies,” Hinchliffe said, according to The Associated Press. Cerberus falls short of the kind of strategic partner GM says it was looking for.

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AP noted that GM’s announcement states the sale should close in the fourth quarter and that GM will not get dividends from GMAC for three years. So for now, Hinchliffe reportedly maintains a “reduce” rating and price target of $18 on General Motors, choosing to focus on near-term fundamentals like March sales and inventory build.