New York, 1/16/1997 -- Moody's Investors Service confirmed the debt ratings of General Motors Corporation (GM) and placed on review for possible downgrade the debt ratings of Hughes Electronics Corporation (Hughes). The rating actions follow today's announcement by General Motors Corporation (GM) that it is restructuring its Hughes subsidiary including the spin-off of Hughes' defense business to GM $1 2/3 and Class H shareholders and subsequent merger with Raytheon Company, and the merger of Delco, Hughes' automotive business, into Delphi, GM's automotive parts operation. Prior to the spin-off, the Hughes' defense business will incur approximately $3.7 to $4.7 billion of new debt, with the principal amount of proceeds used to fund a special dividend to Hughes Electronics' Telecommunications and Space business. MOODY'S CONFIRMS DEBT RATINGS OF GENERAL MOTORS (SENIOR AT A3); REVIEWS DEBT RATINGS OF HUGHES ELECTRONICS CORPORATION FOR POSSIBLE DOWNGRADE
The ratings confirmed include:
General Motors Corporation -- A3 rated senior debt and counterparty ratings, A3/VMIG-2 rated IRB's, (P)A3 rated senior debt shelf registrations, "baa1" rated preferred stock and (P)"baa1" rated preferred stock shelf registrations.
General Motors Corporation Pass-Through Trusts -- A3 rated pass-through certificates created as part of sale and leaseback transactions.
Vauxhall Motors (Finance) Plc. -- A3 rated eurobonds guaranteed by General Motors Corporation.
The ratings under review include:
Hughes Electronics Corporation -- Prime-2 rated commercial paper.
GM Hughes Equipment Trusts -- A3 rated equipment trusts created as part of sale and leaseback transactions.
The proposed restructuring by GM of its Hughes subsidiary, in Moody's view, will not have a materially negative impact on the financial position of General Motors. Historically, Moody's has viewed GM's ownership of Hughes as a potential element of GM's financial flexibility during downcycles in the automobile industry. An important cash contributor and valuable asset, Hughes' defense business did provide support to both Hughes' and GM's financial position. While GM will receive significant cash proceeds as part of the spin-off of its defense business, a substantial portion of this cash is expected to be retained by Hughes Electronics to fund the growth of its telecommunications business. The planned disposition of Hughes' defense business and GM's ongoing focus on enhancing shareholder value may limit GM's potential financial flexibility during the next auto downcycle. However, GM has built-up a substantial liquidity position which will provide some cushion to the company in a recession. In addition, GM has retained an ownership position in two of Hughes' three businesses, Delco and Hughes Telecommunications, which will continue to support its financial flexibility.
According to Moody's, the proposed restructuring of Hughes Electronics Corporation will result in a substantial change in the business profile of the company. Moody's review will focus on the impact on Hughes' debt protection measurements resulting from the disposition of two of its three business units -- the spin-off of Hughes Defense and the transfer of Delco to GM. Moody's will also review Hughes' new capital structure, its growth strategy and the capital requirements and resources available to it to accommodate this growth plan, as well as the general outlook for Hughes' Telecommunication business. At the same time, Moody's review will encompass the impact of the pending merger of Hughes' satellite services operations into a new public entity with PanAmSat Corporation wherein Hughes would have a 70% interest in the venture. Moody's will review the importance of this operation to Hughes' ongoing satellite business, the access to and potential cash flow from these operations and the debt levels it is expected to incur to fund an agreed payment of $1.5 billion to PanAmSat shareholders.
General Motors Corporation, headquartered in Detroit, Michigan, is the largest car manufacturer in North America. Hughes Electronics Corporation is a wholly-owned subsidiary of General Motors.
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