US Corporate Bond (Essay Sample)

US Corporate Bond Students Name Department: Institution Course Title: Course Name Professors Name Date Terms of the Debt Instrument. General Motors Financial Co Inc. (GMF) is a finance company owned by General Motors Company that provides automotive financing services. As at December 01, 2022, GMF issued US Corporate Bond with a maturity date of December 15, 2029. The bond has a fixed coupon rate of 5.750%, a par value of $1,000, a yield of 4.20%, and is callable at par on December 15, 2025 (Wang). The bond is rated BBB+ by S&P and pays semi-annually. The bond rating is important to consider when investing in security. A BBB+ rating from S&P is regarded as a medium-grade investment and a good risk for investors. A rating of BBB+ indicates that the issuer of the bond has a sufficient capacity to meet its financial requirements but is still vulnerable to contrary economic conditions. The bond yield is also an important factor to consider when investing. The bond yield is 4.20%, which is lower than the coupon rate of 5.750% (Wang). This indicates that the bond trades at a premium, which signifies a strong market demand. The callability of the bond is also important to consider when investing. The bond is callable at par on December 15, 2025, which means that the issuer has the right, but not the compulsion, to call the bond on that date. This means that the investor may receive the full maturity of the bond after the maturity date. In conclusion, GMF’s US Corporate Bond is attractive for investors looking for a medium-grade investment with a good yield. The bond is rated BBB+ by S&P, has a yield of 4.20%, and is callable at par on December 15, 2025. Credit Quality Analysis of the Issuer The credit quality of General Motors Financial Co Inc. is strong, with a credit rating of A+ from Standard & Poor’s. The rating reveals the company’s strong market position, competitive position due to its size, and access to a wide range of products and services. In addition, the company benefits from the financial and operational support of its parent company, General Motors Co, which provides a valuable source of capital and liquidity. The corporation’s financial position is also strong, with a debt-to-equity ratio of 1.07 and a current ratio of 1.41 as of December 1, 2022. The company also maintains a strong presence in the automotive finance market, as evidenced by its portfolio of over $14 billion in receivables as of the same date (“General Motors Financial Co Inc.,” n.d.). General Motors Financial Co Inc. also has a strong management team with a long track record of success in the automotive finance industry. The company has a strong liquidity position and can meet its debt obligations when due. Overall, General Motors Financial Co Inc. has a strong credit rating of A+ from Standard & Poor’s, reflecting its strong financial position, competitive position in the automotive finance industry, and access to a wide range of products and services. In addition, the company benefits from the support of its parent company, General Motors Co, which provides a valuable source of capital and liquidity. Call Policy and any special covenants The call policy of General Motors Financial Co Inc. (GMF) bond is defined by the bond indenture terms. The bond indenture is a legally binding agreement between the issuer, GMF, and the bondholders (Schwarcz, 659). This agreement outlines the conditions of the bond and the rights and responsibilities of both parties. The call policy of the GMF bond states that the company has the right, but not the compulsion, to call the bond before its maturity date. This means that the company can redeem the bond before its scheduled maturity. The call policy also specifies the conditions for the bond call. The call price must equal the face value of the bond, and the call must be made on or after the first call date, which is five years from the issue date. In addition to the call policy, the bond indenture also outlines any special covenants that GMF must follow. These covenants are designed to protect the bondholders and limit the amount of risk they are taking on. Some of the covenants outlined in the indenture include a provision that GMF must keep sufficient amounts of cash and liquid assets to meet its obligations under the bond. In addition, GMF must maintain financial statements that are accurate and timely, as well as agree to provide bondholders with the right to inspect their books and records. Finally, the indenture outlines certain events of default that could trigger an acceleration of the debt. These events of default include a failure to comply with any of the covenants, a failure to pay any amounts due under the bond, a change of control of GMF, or any other event that GMF does not have the right to terminate or modify. In summary, the bond indenture of GMF outlines a call policy that allows the company to call the bond at any time before its maturity date. It also outlines certain special covenants that GMF must follow to protect the bondholders and limit the amount of risk they are taking on. Finally, the indenture outlines certain events of default that could trigger an acceleration of the debt. Price, Modified Duration, and Yield to Maturity and Call General Motors Financial Co Inc. is a member of the S&P 500 and has a U.S. Corporate Bond available for trading as of 01 December 2022. The bond, CUSIP 37045VAC9, has a maturity date of 15 June 2027 and a coupon rate of 3.444%. The bond's current price is $96.731, which is lower than the par value of $100.00. The bond's modified duration is 4.62 years, which indicates the sensitivity of the bond's price to alterations in interest rates. The elongated the duration, the greater sensitive the bond price is to interest rate alterations. The bond's price will decrease if interest rates increase, and vice versa. The yield to maturity of the bond is 3.616%. This is the expected rate of return that the venture capitalist will get if they hold the bond until its maturity date. The higher the yield to maturity, the greater the bond's expected return. The call feature of the bond is not currently active, meaning the bond cannot be redeemed at a premium before its maturity date. Bond issuers may choose to call their bonds if interest rates decrease significantly, allowing them to issue new bonds with lower coupon rates. In conclusion, the General Motors Financial Co Inc. U.S. Corporate Bond has a current price of $96.731, a modified duration of 4.62 years, a yield to maturity of 3.616%, and no call feature active as of 01 December 2022. The bond is a medium-term investment option with a relatively low yield to maturity compared to other bonds available in the market. Investors should consider the bond’s sensitivity to interest rate changes and the lack of a call feature before investing. Price analysis for a 100, 200 basis point movement in either direction The price analysis of a 100 or 200 basis point movement in either direction of a bond issued by General Motors Financial Co. Inc. as of December 1, 2022, can be determined using Bloomberg. In order to assess the impact of a 100 or 200-basis point movement in either direction, a few factors need to be considered. The current yield to maturity of the bond is 4.35%. Therefore, a...