General Tire Inc. is tapping the asset-backed securities market for the first time, with the help of J.P. Morgan & Co.
Up to now, Morgan has mainly provided traditional loans to the Akron, Ohio-based company, but the asset-backed securities market is a cheaper source of capital.
"With the assistance and support of J.P. Morgan, we will have the funds and flexibility needed to efficiently finance our operations," John G. Gritman, General Tire's treasurer, said in a statement Wednesday.
General Tire is owned by Continental AG of Germany, the fourth-largest tire maker in the world.
Morgan will issue securities backed by a portfolio of General Tire's accounti receivables.
Special Purpose Corporations
The asset-backed securities will be issued by one of two special purpose corporations formed by Morgan: Delaware Funding Corp., or Delaware Intermediate Term Securitization Corp.
By issuing securities through these conduits, General Tire essentially is able to take advantage of their superior credit ratings.
One of the Morgan conduits sells securities in the form of certificates of deposit, and the other sells medium-term notes.
It wasn't immediately clear which special purpose corporation is being used in the General Tire transaction.
Sold in Private Market
The securities will be sold to investors in the private asset-backed securities market. Unlike the public market, securities sold privately do not have to be registered with the Securities and Exchange Commission.
While the size of the General Tire transaction was not disclosed, private asset-backed securities deals typically range from $50 million to $200 million. Transactions larger than that generally are sold to investors in the public asset-backed securities market.
This year, the public market was booming. The total amount of asset-backed securities issued publicly through Dec. 21 amounted to $60.3 billion, up from $50.1 billion in 1992, according to Securities Data Corp.
Among Top 10 Managers
Morgan, which has ranked among the top 10 managers of public asset-backed securities deals for the past several years, moved up to seventh place this year.
CS First Boston ranked first, followed by Merrill Lynch & Co., and Salomon Brothers.
Also ranking in the top 10 this year was NationsBank.
In the private asset-backed securities market, Morgan is also among the top deal managers, but Citicorp and First Chicago Corp. are bigger players.