New York, 08-04-98 -- Moody's Investors Service confirmed the long term ratings of General Motors Corporation (GM) and General Motors Acceptance Corporation (GMAC) at A2 and the short term rating at Prime-1. This action follows the announcement that GM plans to proceed with transactions that would result in its Delphi Automotive Systems (Delphi) business segment becoming an independent company by the end of 1999. Moody's confirmation reflects the added operational flexibility resulting from the potential reduction in GM's historically high vertical integration and the financial flexibility that may accrue to GM following a partial monetization of its investment in its parts operation. The rating also recognizes the value of Delphi that will eventually be transferred to shareholders and the potential labor unrest that may ensue from the separation of Delphi from GM. Should further labor unrest resulting in the shut down of important portions of GM's NAO production occur before the company has recovered its net liquidity from its most recent shutdown, downward pressure on the rating could result. MOODY'S CONFIRMS GM AND GMAC LONG TERM RATINGS AT A2 AND SHORT TERM AT PRIME-1
Ratings confirmed include:
General Motors Corporation – A2 debentures, notes, senior notes, Swiss bonds, medium term notes, discount debentures, 1991 pass through certificates, guaranteed industrial revenue bonds, guaranteed pollution control bonds, guaranteed step-up eurobonds and variable rate demand revenue bonds; (P)A2 on its shelf registration for senior debt; A2 on its Issuer Rating; A3 Junior Subordinated Deferred Interest Debentures; "a3" on its preferred stock and Guaranteed Trust Originated Preferred Securities and (P) "a3" on its shelf registration for preferred stock.
General Motors Corporation – Prime-1 for commercial paper; VMIG-1 for industrial revenue bonds, pollution control bonds, and variable rate demand revenue bonds.
General Motors Acceptance Corporation – A2 on its bonds, notes, debentures, eurobonds, medium term notes, and euro medium term notes; (P) A2 its shelf registration for senior unsecured debt; and A2 Issuer Rating.
General Motors Acceptance Corporation - Prime-1 commercial paper rating.
For a number of years, General Motors' high level of vertical integration, relative to its US and other global competitors, has been a hindrance to the financial and operational performance of its North American Operations (NAO). In recognition of this, GM, during 1994, combined many of its parts operations into a separate business sector (called Delphi Automotive Systems). Since then, Delphi has been working toward expanding its non-NAO business and in re-orienting its relationship with GM-NAO from that of a preferred captive towards that of third party vendor. The capability of GM-NAO to continue to have the flexibility to source parts from the lowest cost and highest quality providers is of critical importance to its future financial performance and its competitive position. The continuing need for Delphi to restructure its operations in response to the intense pressure on parts suppliers throughout the auto supply industry weighs on GM management time and resources. The separation should allow GM to better focus on its core business of developing and assembling cars and light trucks.
The proposed plan includes an Initial Public Offering of Delphi however the exact cash flows in this potential transaction have not been determined. Any potential cash inflow from this transaction would assist GM in replenishing its cash position, which has declined recently due to the effects of the strike.
While Moody's believes that there are significant benefits to the complete separation of GM and Delphi, UAW opposition could complicate the national contract talks scheduled for September 1999 or could result in further labor unrest for Delphi, over the medium term, as it continues to reduce its cost structure by disposing, closing or downsizing its operations. Despite the potential ownership separation, GM will continue to source a significant amount of parts from Delphi for some time. As seen over the past two months labor unrest at certain Delphi plants can have a significant impact on GM-NAO operations.
Moody's confirmation of GMAC's rating is a reflection of the close business and financial links between GM and its captive finance arm.
General Motors Corporation, headquartered in Detroit, Michigan, is the world's largest automobile producer. General Motors Acceptance Corporation, also headquartered in Detroit, Michigan, is wholly owned by General Motors Corporation. GMAC provides consumer and dealer auto financing throughout the world. GMAC also engages in residential and commercial mortgage lending and servicing, and insurance underwriting. Delphi, based in Troy, Michigan, is the world's largest supplier of automotive components, systems, and modules.
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