Fitch Affirms GM's 'BB+' IDR Following Share Repurchase Announcement
CHICAGO -- December 19, 2012
Fitch Ratings has affirmed the ratings of General Motors Company (GM) and its
wholly owned subsidiary, General Motors Holdings LLC (GM Holdings), following
this morning's announcement that GM will repurchase a portion of the common
stock currently held by the U.S. Treasury (UST). The Issuer Default Ratings
(IDR) for both GM and GM Holdings are 'BB+', and the Rating Outlook for both
is Stable. A full ratings list follows at the end of this release.
GM announced this morning that it has reached agreement with the UST to
repurchase 200 million common shares currently held by the UST for $5.5
billion, which is expected to increase the public float of GM's common stock
above 50%. GM expects to complete the transaction before year end. Following
the repurchase, the UST will continue to hold 300 million shares of common
stock, equal to a 19% stake in the company. However, in conjunction with GM's
agreement to repurchase the shares, the UST has agreed to exit its remaining
stake in the company over the next 12 to 15 months and to relinquish certain
of its governance rights.
Fitch views the transaction as neutral to creditors in the near term and
somewhat positive over the longer term. Although the share repurchase will
constitute a material use of cash, Fitch expects GM's liquidity position to
remain strong following the transaction. As of Sep. 30, 2012, GM had nearly
$32 billion in automotive cash, and in November 2012, the company closed on a
new $11 billion secured credit facility. Therefore, Fitch expects GM to have
sufficient liquidity to complete the share repurchase and maintain a total
liquidity position well above the $25 billion (combined cash and credit
facility) level that Fitch has previously identified as a key liquidity target
for the company.
In the medium term, the removal of certain U.S. government restrictions on GM
will provide the company with additional flexibility in operating its business
and eliminate some of the administrative requirements that it has had to
perform as a recipient of financial assistance from the UST. Over time, Fitch
also expects the decline of the UST's ownership stake to lessen the stigma
associated with GM's government-supported bankruptcy that has hung over the
company and kept some potential customers from considering GM brands.
GM's ratings incorporate the automaker's positive free cash flow generating
capability, very low leverage, strong liquidity position, reduced (but still
heavy) pension obligations and improved product portfolio. Fitch expects GM to
continue with its strategy of keeping a relatively low level of automotive
debt on its balance sheet while maintaining a strong liquidity position, which
will provide the company with substantial financial flexibility in the event
of another industry downturn. Also supporting GM's ratings is the global
diversity of its operations, which sets it apart from the other U.S. auto
manufacturers. In particular, GM's strong presence in China and other emerging
markets helps to shield it from weakness in more mature regions.
Despite its strengthened financial position, GM also continues to face a
number of challenges. The company's margins, particularly in North America,
remain below those of its strongest competitors, and it continues to work on
improving the efficiency of its manufacturing and product development
processes. In addition, GM's European business continues to generate
substantial losses, and weak market conditions and substantial restructuring
actions are likely to weigh on the company's financial performance in the
region for several more years. The underfunded status of GM's pension plans
also remains relatively high, even after the planned defeasing of its U.S.
salaried retiree obligations.
Fitch could undertake a positive rating action on GM if the company's margins,
particularly in North America, rise to the level of its strongest competitors
and if the financial performance of its European operations stabilizes. Also
factored into any positive rating action would be a demonstrated ability to at
least maintain both market share and net pricing in the company's key global
markets. Continued progress on reducing pension liabilities will also be a key
driver of any positive rating action. Fitch will look for GM to maintain a
sustained automotive liquidity position of at least $25 billion, including
both cash and revolver availability.
On the other hand, Fitch could consider a negative rating action if a very
severe downturn significantly weakens GM's liquidity position. However, Fitch
has incorporated into the current ratings the effect that a downturn would
likely have on the company's credit profile, and GM appears to be generally
well positioned to withstand the pressures of a steep decline in demand. Fitch
could also consider a negative rating action if management deviates from its
plan to maintain a strong balance sheet, either by increasing automotive debt
or allowing automotive liquidity to fall below $25 billion for an extended
period of time. Problems with operational execution or a significant decline
in market share could also lead to a negative action.
Fitch has affirmed the following ratings on GM and GM Holdings, as follows:
--Long-term IDR at 'BB+';
--Preferred stock rating at 'BB-';
--Long-term IDR at 'BB+';
--Secured revolving credit facilities at 'BBB-';
The Rating Outlook is Stable.
Fitch notes that the ratings of General Motors Financial Company, Inc. (GMF),
a wholly owned subsidiary of GM, remain on Rating Watch Positive pending the
successful close of GMF's purchase of certain of Ally Financial Inc.'s
international operations. Fitch expects to equalize GMF's ratings to those of
GM once the acquisition is complete. GMF's current IDR of 'BB' is one notch
below that of GM.
Additional information is available at 'www.fitchratings.com'. The ratings
above were solicited by, or on behalf of, the issuer, and therefore, Fitch has
been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--Corporate Rating Methodology (Aug. 8, 2012);
--Recovery Ratings and Notching Criteria for Nonfinancial Corporate Issuers
(Nov. 13, 2012);
--Evaluating Corporate Governance (Dec. 12, 2012);
--2013 Outlook: U.S. Auto Manufacturers and Suppliers (Dec. 17, 2012);
--The New U.S. Auto Fuel Economy and Emissions Standards: What They Are and
Who Will Benefit (Nov. 5, 2012).
Applicable Criteria and Related Research:
Corporate Rating Methodology
Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers
Evaluating Corporate Governance
2013 Outlook: U.S. Auto Manufacturers and Suppliers
The New U.S. Auto Fuel Economy and Emissions Standards: What They Are and Who
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Stephen Brown, +1-312-368-3139
70 West Madison Street
Chicago, IL 60602
Craig D. Fraser, +1-212-908-0310
Mark Oline, +1-312-368-2073
Brian Bertsch, +1-212-908-0549
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