Approximately $43 billion of debt affected
New York, December 03, 2008 -- Moody's Investors Service has downgraded the debt ratings of General
Motors Corporation, Corporate Family and Probability of Default
ratings to Ca from Caa2, in recognition of the increased probability
of a balance sheet restructuring which results in a loss for current debtholders.
Moody's would view the company's potential balance sheet restructuring,
which is likely to cause bondholder losses, to be a distressed exchange
which would be treated as a default for analytic purposes. The
rating outlook is negative and the company's Speculative Grade Liquidity
Rating is affirmed at SGL-4. The ratings of GMAC LLC are
not affected by these GM rating actions.
In its Restructuring Plan for Long-term Viability submitted to
the Senate Banking Committee and House of Representatives Financial Services
Committee on December 2, 2008, General Motors indicated that
its restructuring plan "includes, and is conditioned upon,
significant sacrifice and deleveraging of its balance sheet."
Specifically, the plan references a reduction of GM's total
debt, including VEBA-related obligations from $62
billion to approximately $30 billion with a corresponding increase
in book equity from ($65.1) billion to approximately ($32)
billion. GM has not specifically identified the mechanism for implementing
the balance sheet restructuring, nor has it made any specific proposals
to bondholders. Nevertheless, the plan is suggestive of a
transaction that would be viewed as a distressed exchange by Moody's
if implemented.
Importantly, GM has indicated that its plan would "preserve
the status of existing trade creditors" and "would honor terms
and provisions of all outstanding warranty obligations to both consumers
and dealers." Preservation of trade creditors will be critical
to avoid any disruption in the company's supply chain and continuing
to honor warranty obligations will help to avoid significant erosion of
the company's continuing vehicle brands during the restructuring
process. Failure in either of these areas could exacerbate the
challenges that the company faces and increase the risk of a bankruptcy
filing.
In its filing, GM has requested a total of $18 billion of
government funding be made available to it to bridge the liquidity pressures
which it anticipates in its business plan. According to GM,
the funding would enable the company to maintain global liquidity above
its minimum threshold of about $11 billion even if automotive industry
conditions were to worsen such that U.S. automotive sales
were to fall to 10.5 million units in 2009. The plan calls
for a reduction in the number of GM's brands, nameplates and
retail dealers, cost reductions that would be designed to achieve
labor cost competitiveness with foreign manufacturers in the U.S.
by 2012 and changes to the company's VEBA related obligations.
Moody's Senior Vice President Bruce Clark stated that "while
the plan provides a general framework for a business restructuring,
the success of the plan will be contingent on negotiations with labor,
creditors and government agencies. The uncertainty of a successful
outcome along with the likelihood of debtholder losses even if the plan
succeeds is the basis for the downgrade and negative outlook."
Downgrades:
Issuer: General Motors Corporation
....Probability of Default Rating, Downgraded
to Ca from Caa2
....Corporate Family Rating, Downgraded
to Ca from Caa2
.Senior Secured Bank Credit Facility, Downgraded
to a range of B3, LGD1, 4% from a range of B1,
LGD1, 4%
....Senior Unsecured debt and IRB's,
Downgraded to a range of C, LGD5, 71% from a range
of Caa3, LGD4, 61%
....Senior Unsecured Shelf, Downgraded
to a range of (P)C, LGD5, 71% from a range of (P)Caa3,
LGD4, 61%
....Multiple Seniority Shelf for subordinated
debt and preferred, Downgraded to a range of (P)C, LGD 6,
97% from a range of (P)Ca, LGD 6, 97%
..Issuer: General Motors Nova Scotia Finance Company
....Senior Unsecured Regular Bond/Debenture,
Downgraded to a range of C, LGD5, 71% from a range
of Caa3, LGD4, 61%
....Senior Unsecured Shelf, Downgraded
to a range of (P)C, LGD5, 71% from a range of (P)Caa3,
LGD4, 61%
..Issuer: General Motors of Canada Limited
....Senior Secured Bank Credit Facility,
Downgraded to a range of B3, LGD1, 4% from a range
of B1, LGD1, 4%
..Issuer: Vauxhall Motors (Finance) PLC
....Senior Unsecured Regular Bond/Debenture,
Downgraded to a range of C, LGD5, 71% from a range
of Caa3, LGD4, 61%
The last rating action on GM was a downgrade of the company's Corporate
Family Rating to Caa2 on October 27, 2008.
The principal methodology used in rating GM was Moody's 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 can also
be found in the Credit Policy & Methodologies directory."
General Motors Corporation, headquartered in Detroit, Michigan,
is the world's second-largest automotive manufacturer.
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 lowers GM rating to Ca; outlook is negative