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Global Credit Research - 01 Jun 2012
New York, June 01, 2012 -- Moody's Investors Service said General Motor Company's termination
of its US salaried pension plan has certain positive and negative credit
elements that largely balance each other out. Consequently,
the undertaking will have no impact on GM's Ba1 rating and positive
outlook, or on the company's trajectory toward a possible
"GM's plan has some constructive elements," said
Bruce Clark, senior vice president at Moody's. "It
will reduce the company's pension assets and liabilities by $26
billion and relieve it of the obligation to make future payments to most
of its salaried retirees. It will also free it from the volatility
associated with pension investment returns, long-term interest
rates and mortality rates."
But, Clark went on to say, "These benefits come with
a cost. GM will spend $3.5 billion to $4.5
billion on this undertaking, and when all is said and done,
the company's total underfunded pension liability will be reduced
by only $1.0 billion. The aggregate underfunded liability
will still be a very large at about $24 billion."
Moody's views underfunded pension liabilities as a debt-like
obligation. Consequently, the reduction from $25 billion
to $24 billion does not materially improve the company's
credit metrics on an adjusted basis. Moody's also notes that
the cost of this undertaking will lower GM's cash position from
$32 billion to about $28 billion. Although the company's
liquidity position will remain strong, the approximately $4
billion reduction represents a cost that is not inconsequential.
The salaried pension plan termination's impact on GM's credit
profile is more fully discussed in a June 1st Moody's CreditFocus
analysis entitled "GM's Salaried Pension Plan Actions Do Not
Materially Change Its Credit Profile." The report is available
J. Bruce Clark
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
Michael J. Mulvaney
MD - Corporate Finance
Corporate Finance Group
Moody's says GM's Credit Profile and Rating Unchanged by Salaried Pension Actions
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
No Related Data.
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