By Sarah Mulholland and John Detrixhe Sept. 16 (Bloomberg) -- Two years after the bankruptcy of Lehman Brothers Holdings Inc. caused credit markets to freeze, investors are embracing bonds backed by loans to consumers with lower credit scores as yields approach all-time lows. AmeriCredit Corp., the lender to car buyers that’s being purchased by General Motors Co., sold $850 million of bonds tied to auto loans in its largest sale in three years after increasing the offering by $150 million. Securities linked to loans to consumers with credit considered subprime account for 20 percent of asset-backed auto debt issuance this year, double the share in 2008 and 2009, according to Deutsche Bank AG. “It is all about the incremental yield,” said Dan Castro, head of structured finance analytics and strategy at broker- dealer BTIG LLC in New York. “Mainstream auto won’t get you there.” Issuers have sold $4.4 billion of bonds tied to subprime auto loans this year, more than double the amount arranged in 2009, Bloomberg data show. While sales plunged during the subprime crisis beginning in 2007 and froze after the bankruptcy of Lehman, the biggest in history, investors are now snapping up similar securities attracted by yield. A top-rated portion of AmeriCredit’s offering that matures in about two years yields 45 basis points more than the benchmark swap rate, compared with a spread of 18 basis points on similar-maturity debt tied to prime borrowers from Nissan Motor Co., Bloomberg data show. GM, the automaker that’s 61 percent owned by the U.S., agreed to buy Fort Worth, Texas-based AmeriCredit in July for $3.5 billion to help reach customers with faulty credit records. ‘Riskier Names’ “We are looking at some of the riskier names,” said Jeffery Elswick, director of fixed income at Frost Investment Advisors LLC in San Antonio, with $6.5 billion in assets under management. Elsewhere in credit markets, the extra yield investors demand to own company bonds instead of similar maturity government debt was unchanged at 172 basis points, or 1.72 percentage point, according to Bank of America Merrill Lynch’s Global Broad Market Corporate Index. Yields averaged 3.564 percent, up from 3.533 percent. Blackstone Group LP, the world’s largest buyout firm, sold $400 million of debt as September corporate issuance soars. Ford Motor Co. bonds jumped as Chief Executive Officer Alan Mulally said the automaker will regain an investment-grade credit rating sooner than executives expected. Leveraged loan prices climbed to the highest in more than three months. Blackstone’s 5.875 percent notes maturing in March 2021 yield 325 basis points more than similar-maturity Treasuries, according to data compiled by Bloomberg. That compares with a spread of 312.5 basis points on 10-year, 6.625 percent notes that the New York-based firm sold in August 2009. September Sales Soar Companies sold at least $7.3 billion of dollar-denominated debt yesterday, bringing September issuance to $74 billion, Bloomberg data show. That’s a 19 percent jump from the similar period of 2009, and compares with sales of $102.9 billion in all of August. Korea Finance Corp. sold $750 million of six-year global notes denominated in U.S. dollars, according to a person familiar with the transaction. The debt yields 182.5 basis points more than similar-maturity Treasuries, said the person, who declined to be identified citing lack of authorization to speak publicly about the offering. Junk Bonds High-yield, high-risk issuance of $3.95 billion for the day was the most since Aug. 9, when sales were $5.1 billion, Bloomberg data show. Offerings of junk bonds, rated below Baa3 by Moody’s Investors Service and lower than BBB- by Standard & Poor’s, have soared to $167.8 billion this year, an annual record, compared with $92.8 billion in the corresponding period of 2009. Ford, which borrowed more than $23 billion in 2006 before credit markets froze, is “paying the money back now, and we’re going to be back to investment grade a lot sooner than what we thought,” Mulally said yesterday at an event with the Wings Club, an aviation group in New York. Ford Motor Credit Co.’s $1 billion of 5.625 percent, 5-year notes sold Sept. 14 rose 1.31 cents to 101.06 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. Bonds from Dearborn, Michigan-based Ford, the only major U.S. automaker to avoid bankruptcy last year, were the most actively traded U.S. corporate securities by dealers yesterday, with 194 trades of $1 million or more, Trace data show. Credit Swaps Fall The Markit CDX North America Investment Grade Index, a credit-default swaps benchmark that investors use to hedge against losses on corporate debt or to speculate on creditworthiness, fell 0.2 basis point to a mid-price of 103.625 basis points as of 5:51 p.m. in New York, according to Markit Group Ltd. In London, the Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 0.7 to 105.7. The indexes typically fall as investor confidence improves and rise as it deteriorates. Credit-default swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of investments. In emerging markets, relative yields fell 9 basis points to 276 basis points, according to JPMorgan Chase & Co. index data. Spreads, which rose in each of the previous two days, have declined 1 basis point for the week. The S&P/LSTA US Leveraged Loan 100 Index rose 0.04 cent to 89.89 cents on the dollar, the highest since May 19. Burger King Burger King Holdings Inc. will meet with potential lenders Sept. 20 in London to discuss a euro-denominated loan as part of the $1.9 billion of debt planned to finance its buyout by 3G Capital, according to people familiar with the discussions. Yields on corporate bonds worldwide declined to a record 3.442 percent on Aug. 24, Bank of America Merrill Lynch index data show, as two-year U.S. government debt also fell to an all- time low. Top-rated asset-backed securities linked to auto loans are yielding about 47 basis points more than Treasuries, the lowest spread since April 23, according to Barclays Plc data. “Caution is warranted as yields grind in,” said Ronald Thompson Jr., head of asset-backed securities strategy at Knight Libertas LLC in Greenwich, Connecticut. “The enthusiasm for a number of deals that have come recently is compelling, but I think we might be getting a little bit ahead of ourselves in the current economic environment.” AmeriCredit Offering AmeriCredit has sold $2.45 billion of the bonds this year, Bloomberg data show. The offering yesterday was the largest since the company issued $1 billion of securities tied to primarily prime and near-prime borrowers in October 2007, a month after raising $1 billion of debt linked mostly to subprime auto loans, according to the company’s website. “The level of interest from investors in the capital markets is very supportive of our growth,” said Caitlin DeYoung, a spokeswoman for AmeriCredit. “The favorable funding environment helps us from a volume perspective.” Bondholders have become more comfortable with subprime auto debt as used cars hold their value, said Adam Steer an analyst at research firm CreditSights Inc. in New York. “If the cars are holding up in value you are lending against a less risky asset,” he said. The Manheim Used Vehicle Index has risen 21 percent since December 2008, and touched a record high in May. Delinquency Rate The 30-day delinquency rate for auto loans for borrowers with all types of credit has also improved, falling to 2.89 percent in the second quarter from 3.07 percent in the same period of 2009, according to a report yesterday from Deutsche Bank, citing data from credit service Experian. Munich-based Bayerische Motoren Werke AG yesterday sold $1 billion of bonds backed by automobile leases after increasing the issue from $750 million. DriveTime Automotive Group Inc., a Phoenix-based company that finances cars and trucks for borrowers with weak credit, is marketing $228 million of asset- backed securities. “There’s so much cash, they’re putting it to work in what they would consider to be defensive investments,” Richard Gordon, managing director and fixed-income market strategist at Wells Fargo & Co., said in a telephone interview from Chicago. “The longer that we stay in an ultra low-yield environment, the more the level of systemic risk increases.” To contact the reporters on this story: Sarah Mulholland in New York at smulholland3@bloomberg.net; John Detrixhe in New York at jdetrixhe1@bloomberg.net

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