Recipient email addresses will not be used in mailing lists or redistributed.
Use semicolon to separate each address, limit to 20 addresses.
characters you see
You have successfully sent the research.
Please note: some research requires a paid subscription in order to access.
Already a customer?
Don't want to see this again?
Accept our to continue to Moodys.com:
AND SCROLL DOWN!
By clicking “I AGREE” [at the end of this document],
you indicate that you understand and intend these terms and conditions to be
the legal equivalent of a signed, written contract and equally binding, and
that you accept such terms and conditions as a condition of viewing any and all
Moody’s information that becomes accessible to you [after clicking “I AGREE”] (the
“Information”). References herein to “Moody’s” include Moody’s
Corporation, Inc. and each of its subsidiaries and affiliates.
Terms of One-Time Website Use
you have entered into an express written contract with Moody’s to the contrary,
you agree that you have no right to use the Information in a commercial or
public setting and no right to copy it, save it, print it, sell it, or publish
or distribute any portion of it in any form.
acknowledge and agree that Moody’s credit ratings: (i) are current opinions of
the future relative creditworthiness of securities and address no other risk; and
(ii) are not statements of current
or historical fact or recommendations to purchase, hold or sell particular
securities. Moody’s credit ratings and
publications are not intended for retail investors, and it would be reckless
and inappropriate for retail investors to use Moody’s credit ratings and
publications when making an investment decision. No
warranty, express or implied, as the accuracy, timeliness, completeness,
merchantability or fitness for any particular purpose of any Moody’s credit
rating is given or made by Moody’s in any form whatsoever.
3. To the extent permitted by law, Moody’s and its directors,
officers, employees, representatives, licensors and suppliers disclaim
liability for: (i) any indirect, special, consequential, or incidental losses
or damages whatsoever arising from or in connection with use of the
Information; and (ii) any direct or compensatory damages caused to any person
or entity, including but not limited to by any negligence (but excluding fraud
or any other type of liability that by law cannot be excluded) on the part of
Moody’s or any of its directors, officers, employees, agents, representatives,
licensors or suppliers, arising from or in connection with use of the
4. You agree to read [and
be bound by] the more detailed disclosures regarding Moody’s ratings and the
limitations of Moody’s liability included in the Information.
5. You agree that any disputes relating to this agreement or your use of
the Information, whether sounding in contract, tort, statute or otherwise,
shall be governed by the laws of the State of New York and shall be subject to
the exclusive jurisdiction of the courts of the State of New York located in
the City and County of New York, Borough of Manhattan.
01 Nov 2005
Approximately $30 Billion of Debt Affected
New York, November 01, 2005 -- Moody's Investors Service lowered the long-term rating of
General Motors Corporation (GM) to B1 from Ba2. The outlook is
negative. The Ba1 rating of General Motors Acceptance Corporation
(GMAC) and the Baa3 rating of Residential Capital Corporation remain under
review with direction uncertain. The GM downgrade reflects greater
uncertainty as to GM's ability to implement a comprehensive restructuring
program, stem eroding market share, rebuild North American
profitability, and achieve positive free cash flow quickly enough
to meet the financial metrics previously defined by Moody's for
maintenance of its Ba2 rating. Moreover, factors that could
create additional uncertainty include: risk of supply disruptions
if actions by Delphi to reduce its costs lead to UAW job actions;
potential implications of the recently announced SEC investigations;
and any actions that GM might need to take to address the interests of
The ongoing erosion of GM's competitive position and market share
is evident in the company's significant third quarter operating
loss, which contributed to $6.6 billion of cash consumption
for the nine months ended September 30th. The company anticipates
that the scheduled launch of its new T900 trucks and SUVs will provide
opportunity for improved market share and financial performance.
However, in an environment where consumer preferences are shifting
toward more fuel efficient vehicles, the market acceptance of this
new line of vehicles is less certain, and may not enable the company
to fully recover the considerable investment made to develop, produce
and launch the project.
At the same time, GM continues to face a significant competitive
cost disadvantage because of a burdensome North American wage and benefit
structure within its own operations and those of its major supplier,
Delphi Corporation. While the company has recently reached a tentative
agreement with the UAW to significantly reduce its retiree healthcare
costs, the cash flow benefits of this proposed plan are unlikely
to be realized before 2008. Moreover, further cost reduction
initiatives are likely to be needed in order for GM to achieve a competitive
cost structure in North America. Further restructuring actions
would likely require a large use of cash in order to fund employee separation
costs. Liquidity could be further pressured by continued operating
cash deficits together with any cash payments related to the Delphi reorganization.
A potential offset to these liquidity requirements is GM's plan
to monetize a portion of its GMAC investment, and the B1 rating
anticipates that GM will be successful in selling a majority stake in
GMAC. Dividends received from GMAC have been a major source of
cash to GM and have provided a lift to its credit metrics. The
potential reduction in dividends from GMAC due to a partial sale would
contribute to a longer-term erosion of the company financial profile.
Despite this erosion, the sale plays a critical role in GM's
financial strategy. The transaction will boost liquidity available
to fund GM's operating and restructuring requirements, and
will enhance GMAC's value by improving its capital structure and
funding cost. Consequently, Moody's believes that a
failure to complete the sale would require further adjustment to the company's
strategy and could result in additional downward pressure on the rating.
The negative outlook reflects Moody's view that GM continues to
face a number of near-term challenges that could further pressure
the rating. GM remains vulnerable to any work actions or strikes
that might occur at Delphi as a result of the supplier's attempt
to reduce labor costs. Any interruption of supply arrangements
with Delphi would be highly disruptive for GM. Beyond this,
failure to achieve material incremental labor cost reductions over the
intermediate term could require the company to pursue other strategic
initiatives that could have further negative rating implications.
The SEC inquiry into certain GM accounting practices could distract management's
attention from implementing needed restructuring actions. Moody's
further notes that SEC investigations have, in a number of circumstances,
resulted in various companies electing to delay the filing of their financial
statements, resulting in their inability to comply with lending
agreement covenant requirements. While GM has not indicated any
delay in its financial reporting related to the SEC investigation,
such an event would be viewed negatively from a rating perspective.
Moreover, it would be viewed negatively if developments relating
to the investigation interfered with the company's ability to sell
a majority interest in GMAC.
Moreover, depending on developments in the investigation,
the company's ability to file financial statements in a timely manner
and thereby remain in compliance with covenant provisions of various lending
agreements could be jeopardized. Developments in the inquiry could
also interfere with the company's near-term ability to sell
a majority interest in GMAC.
The company's SGL-1 Speculative Grade Liquidity Rating considers
that as GM contends with market and competitive challenges, it will
benefit from $19 billion of cash and $16 billion in long-term
Voluntary Employees' Beneficiary Association (VEBA) balances. These
resources, along with proceeds from the potential sale of a majority
stake in GMAC, should provide critical liquidity through 2007.
In order to maintain the parent company's B1 rating, GM's
automotive operations, excluding any earnings or dividend contribution
from GMAC, will have to remain on track for generating interest
coverage exceeding 1.5 times, EBIT margin of over 2%,
and positive free cash flow by 2007. The following areas are the
principal drivers of GM's ability to implement longer term recovery:
Near term finalization of the proposed UAW agreement to reduce
health care costs, and laying the groundwork for productive negotiations
with the UAW regarding the 2007 contract negotiation;
Achieving component cost reductions including a supply agreement
with Delphi that materially reduces the current $2 billion cost
Avoiding operational disruptions stemming from Delphi's restructuring,
and minimizing obligations associated with its guarantee of certain Delphi
pension and health care benefits;
Rebuilding market share including establishing market acceptance
and reasonable pricing for the T900 series;
Completing the sale of a majority interest in GMAC;
Maintaining strong liquidity;
Resolving the SEC investigation in a manner that does not delay
release of or necessitate material adjustments to its financial statements.
Consistent progress in these areas could stabilize GM's rating outlook
and lay the ground work for a credit recovery. Conversely,
set backs could result in further rating downgrades.
GMAC's Ba1 long-term rating, which was placed under
review with direction uncertain on October 17, 2005, is not
affected by the downgrade in GM's ratings. GMAC's Not-Prime
short term rating, currently under review for possible upgrade,
is also not affected by the GM rating action.
Moody's believes GM to be aggressively pursuing its previously announced
intention to sell a controlling stake in GMAC. The outcome of a
successful transaction would likely lead to a separation of GMAC's
ratings from those of GM, assuming the strategic partner exhibits
sufficient financial and managerial strength and strategic alignment with
GMAC's auto and mortgage finance franchises.
Moody's believes GMAC's stand-alone credit profile
would currently warrant a low-Baa long-term rating,
based upon GMAC's franchise strength and reasonable credit metrics,
balanced by its sizeable direct and indirect exposure to GM. Moody's
has noted that should GMAC's new strategic partner exhibit both
an ability and willingness to support the enterprise, there could
ultimately be positive implications for GMAC's ratings beyond its
current stand-alone low-Baa credit profile.
Moody's notes that there is uncertainty regarding the outcome of
GM's plans for the sale of a controlling stake in GMAC. A
transaction this large and complex necessarily entails execution risk.
In maintaining the current Ba1 long-term rating, on review
with direction uncertain, Moody's is assuming that a transaction
is likely to be completed. If Moody's believes that a successful
outcome is less likely as events develop, Moody's could lower
GMAC's ratings in the interim. If GM is ultimately unable
to consummate its plans in such a way as to achieve ratings separation
for GMAC, Moody's would likely re-link GMAC's
long-term rating with the long-term rating of GM.
The number of notches of rating differential between the GMAC ratings
and the GM ratings would be evaluated at that time. Moody's
said that it has historically maintained a one-notch differential
between the firms' long-term ratings. This has been
based upon Moody's belief that GMAC's unsecured creditors
benefit from (1) to a limited degree, a lower likelihood of default
between the two firms, and (2) to a much greater degree, reduced
severity of loss upon default, relative to GM unsecured creditors.
General Motors Corporation, headquartered in Detroit, Michigan,
is the world's largest producer of cars and light trucks. GMAC,
a wholly-owned subsidiary of GM, provides retail and wholesale
financing in support of GM's automotive operations and is one of the world's
largest non-bank financial institutions.
Michael J. Mulvaney
Corporate Finance Group
Moody's Investors Service
MOODY'S DOWNGRADES GM'S RATING TO B1 WITH NEGATIVE OUTLOOK; GMAC'S RATING AT Ba1 REMAINS UNDER REVIEW WITH DIRECTION UNCERTAIN
J. Bruce Clark
Senior Vice President
Corporate Finance Group
Moody's Investors Service
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.
CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. AND ITS RATINGS AFFILIATES (“MIS”) ARE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MOODY’S PUBLICATIONS MAY INCLUDE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND MOODY’S OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. CREDIT RATINGS AND MOODY’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND MOODY’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. NEITHER CREDIT RATINGS NOR MOODY’S PUBLICATIONS COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS AND PUBLISHES MOODY’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.
MOODY’S CREDIT RATINGS AND MOODY’S PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS AND INAPPROPRIATE FOR RETAIL INVESTORS TO USE MOODY’S CREDIT RATINGS OR MOODY’S PUBLICATIONS WHEN MAKING AN INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER.
ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT.
CREDIT RATINGS AND MOODY’S PUBLICATIONS ARE NOT INTENDED FOR USE BY ANY PERSON AS A BENCHMARK AS THAT TERM IS DEFINED FOR REGULATORY PURPOSES AND MUST NOT BE USED IN ANY WAY THAT COULD RESULT IN THEM BEING CONSIDERED A BENCHMARK.
All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided “AS IS” without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY’S is not an auditor and cannot in every instance independently verify or validate information received in the rating process or in preparing the Moody’s publications.
To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY’S.
To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information.
NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY CREDIT RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER.
Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any rating, agreed to pay to Moody’s Investors Service, Inc. for ratings opinions and services rendered by it fees ranging from $1,000 to approximately $2,700,000. MCO and MIS also maintain policies and procedures to address the independence of MIS’s ratings and rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com
under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”
Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.
Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.
MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any rating, agreed to pay to MJKK or MSFJ (as applicable) for ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY250,000,000.
MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.