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22 Mar 2006
MOODY'S CONTINUES REVIEW OF GM RATINGS FOR POSSIBLE DOWNGRADE; ACCELERATED ATTRITION AGREEMENT VIEWED AS CONSTRUCTIVE
New York, March 22, 2006 -- Moody's Investors Service believes that the proposed agreement between
General Motors Corporation (GM), Delphi Corp and the UAW concerning
an accelerated attrition program is a positive development in GM's
attempt to reestablish a more competitive and sustainable business position
in North America. Notwithstanding this progress, the ratings
of GM (Corporate Family Rating -- B2), General Motors Acceptance
Corporation (senior unsecured rating --Ba1) and Residential Capital
Corporation (senior unsecured rating -- Baa3) remain under review
for possible downgrade pending: 1) GM's ability to file financial
statements with the SEC; 2) Moody's assessment of the company's
financial condition as reflected in the yet-to-be filed
audited financials; and 3) for GMAC and ResCap -- the outcome
of GM's efforts to sell a controlling stake in GMAC.
Moody's anticipates that during the initial year following the proposed
accelerated attrition agreement, the resulting cash costs and savings
will have a very modest net positive impact on GM's automotive cash
flow. During subsequent years, however, the net cash
savings should be more material. In Moody's view, the
agreement also reduces, but does not eliminate, the risk of
a UAW strike at Delphi which could be highly disruptive to GM's
North American operations. The rating agency said that despite
the constructive elements of this agreement, considerable progress
in other areas will need to be achieved in order to adequately resolve
the Delphi reorganization, and thereby contribute to a more viable
operating model for both Delphi and GM.
Moody's continuing review of the GM rating is focusing on GM's
ability to file its financial statements in the near term and to avert
any potential violation of the terms under the indenture for its $32
billion in public debt and the terms of its $5.6 billion
credit facility. The review is also focusing on the quality of
GM's 2005 earnings, including an assessment of the impact
of restatements and disclosures relating to unusual charges as well as
the extent and nature, if any, of material weaknesses and
In addition to the above areas of review, GM's ability to
sustain its B2 rating continues to be dependent on the company's
progress in several specific areas including: completing the sale
of a majority interest in GMAC; avoiding a UAW strike at Delphi;
assisting in a successful reorganization of Delphi; establishing
solid market acceptance of its T900 trucks and SUVs; stabilizing
its US market share; and, establishing a more competitive benefit
and work rule framework following the renegotiation of its UAW contract
in September 2007.
General Motors Corporation, headquartered in Detroit, Michigan,
is the world's largest producer of cars and light trucks.
Michael J. Mulvaney
Corporate Finance Group
Moody's Investors Service
J. Bruce Clark
Senior Vice President
Corporate Finance Group
Moody's Investors Service
No Related Data.
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