NEW YORK -- General Motors' finance arm, General Motors Acceptance Corp., does not warrant a higher debt rating than its parent company under their current corporate structure, Fitch Ratings said on Wednesday.
Fitch now rates GM and its finance arm "BBB-," one step above junk, with a negative outlook. Market hopes that Fitch would leave GMAC at an investment-grade level if GM were downgraded surfaced last week when Fitch issued a report noting that in some "rare" cases, finance subsidiaries can be rated higher than their parent.
"We believe there is work to be done for us to potentially recognize a distinction there," said Fitch analyst Christopher Wolfe, speaking on a conference call. "It comes down to whether or not they wish to pursue that."
GM and its finance arm are among the largest corporate borrowers in the United States and a downgrade of both entities to junk status could roil financial markets worldwide. GMAC accounts for about $268 billion of GM's $300 billion of total debt, including secured borrowings.
One key to rating a finance subsidiary higher than its parent is the existence of operating agreements that protect creditors at the subsidiary, Fitch said. Though GM and GMAC have some operating agreements in place, Fitch said they are not specific enough in a few key areas and would have to be clarified.