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Announcement:

Moody's comments on GM and Chrysler restructuring proposals; Ca ratings unchanged.

18 Feb 2009

New York, February 18, 2009 -- Moody's Investors Service said today that the risk of a bankruptcy filing by General Motors (GM) and Chrysler Automotive LLC (Chrysler) remains high. The rating agency's comments came in response to the submission by both companies of their respective restructuring plans to the US Treasury, in compliance with the February 17 deadline stipulated in the emergency loan package established on December 19, 2008.

As a result of the precipitous decline in global automotive demand, particularly in North America and Europe, GM and Chrysler have significantly increased their estimates for the amount of government loans they will need since the submission of their December 2, 2008 restructuring plan and loan request to the US Treasury. GM's request for government loans, based on its base case assumptions, has risen to $22.5 billion from $18 billion, and Chrysler's request has increased to $9 billion from $7 billion. To date, government funding to GM has been $13.4 billion with an additional $6 billion having been made available to GMAC LLC. Funding extended to Chrysler has been $4 billion, with $1.5 billion having been extended to Chrysler Financial.

Bruce Clark, Senior Vice President with Moody's said, "Despite the extension of considerable emergency funding to GM and Chrysler and their finance arms, we continue to see a high risk of a Chapter 11 filing by one or more of the US auto makers with the government providing DIP financing to promote an orderly bankruptcy process. We continue to see the probability of such a filing as being in the area of 70% - the same level we identified in our December 2008 comment on the US auto industry." This risk, as well as the high likelihood of some form of a distressed exchange for debt holders, is reflected in Moody's Ca Corporate Family Ratings for GM and Chrysler. These ratings are unchanged.

Given the significantly increased need for government support, Moody's expects that the US Treasury is likely to be more insistent that each company's constituents, particularly creditors and the UAW, make substantive concessions as part of their restructuring programs. Key provisions that had been contained in the Treasury's conditions for extending loans beyond March 31st, include: 1) the conversion of 2/3 of unsecured public debt to equity; 2) an agreement with the UAW that 50% of future VEBA contributions be made in the form of equity; and 3) the narrowing of the UAW wage and productivity gap with that existing at US transplant facilities.

Although negotiations in these areas are continuing, final agreement has not been achieved. Moreover, Moody's remains concerned that there is a degree of resistance on the part of creditors and the UAW to make the level of concessions that might be acceptable to the Treasury and to the governmental panel that will assess the companies' viability and evaluate the merits of providing the additional funds that have been requested.

Bruce Clark said, "The government has already put a lot of money into these companies, and the ripple effects of a filing would be extremely damaging to the economy. As a result, there may be a degree of skepticism among creditors and other constituents that the government will actually allow any of the Detroit-3 to file for bankruptcy."

However, Clark concluded that, "Because of the potential reluctance of constituents to make adequate concessions and the considerable complexity of the reorganization, the government may in fact have to stand aside and allow one or more companies to make a Chapter 11 filing as a measure that could accelerate the restructuring that is necessary."

The last rating action on GM and Chrysler was a downgrade of their Corporate Family Ratings to Ca on December 3, 2008.

The principal methodology used in rating GM and Chrysler is the Global Automotive Manufacturer Methodology which can be found at www.moodys.com in the Credit Policy & Methodologies directory, in the Ratings Methodologies subdirectory. Other methodologies and factors that may have been considered in the process of rating this issuer [this issue] can also be found in the Credit Policy & Methodologies directory.

New York
Michael J. Mulvaney
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
J. Bruce Clark
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's comments on GM and Chrysler restructuring proposals; Ca ratings unchanged.
No Related Data.
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