GM Gets Better Rating From S&P Than Ford on Cash Flow

General Motors Co., 61 percent owned by the Treasury Department, was given a higher credit rating by Standard & Poor’s Ratings Services than Ford Motor Co., the only major U.S. automaker to avoid bankruptcy last year.

The credit service today said it assigned Detroit-based GM a BB- rating with a stable outlook. It had previously given Ford a B+ rating with a positive outlook. GM’s rating is three levels below investment grade.

“There’s a lot of similarities but there are also some differences,” Robert Schulz, a Standard & Poor’s credit analyst, said in a telephone interview.

GM has good prospects for generating cash from its operations in China and Brazil and has an improved balance sheet after emerging from bankruptcy in July 2009, he said.

Ford is ahead on its North America turnaround while it still has a substantial amount of debt, he said.

“We expect Ford’s credit measures to be improving because of the improvement in the earnings, whereas GM, some of the balance sheet metrics are strong or relatively better because of the debt reduction,” he said.

The rating comes a day after Fitch Ratings gave GM a BB- rating, the same as Ford’s. GM and the U.S. Treasury aim to hold an $8 billion to $10 billion IPO in November, two people familiar with the plans said last month. GM had $8.2 billion in debt at the end of the second quarter, S&P said.

Photographer: Jeff Kowalsky/Bloomberg

Flags fly outside the General Motors world headquarters in Detroit. Close

Flags fly outside the General Motors world headquarters in Detroit.

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Photographer: Jeff Kowalsky/Bloomberg

Flags fly outside the General Motors world headquarters in Detroit.

Reduced Risk

GM’s lower cost base and slow industry recovery “have greatly reduced the risk that GM’s liquidity position would revert to dangerously low levels in the next few years,” S&P said.

Both automakers have underfunded pension plans. GM’s is underfunded by $27 billion through 2009, Fitch said. Ford’s is underfunded by about $6.1 billion, Fitch said in an Aug. 6 report. Ford has about $27 billion in debt, Fitch said.

The automaker, based in Dearborn, Michigan, is making progress toward returning to an investment-grade credit rating, Chief Executive Officer Alan Mulally said Sept. 29 at the Paris Motor Show.

“We’re ahead of plan in repairing our balance sheet and getting back to investment grade,” Mulally told Bloomberg Television at a news conference on the eve of the show.

Lewis Booth, Ford’s chief financial officer, said regaining the investment-grade rating is a “rallying cry” for the automaker.

GM’s 8.375 percent bonds due July 2033, which were issued by old General Motors Corp. and convert to shares in the new GM, rose 0.375 cent on the dollar to 34.875 cents in New York, according to Trace, the bond-pricing service of the Financial Industry Regulatory Authority.

Ford’s 7.45 percent notes due in July 2031 rose 0.25 cent to 108.5 cents in New York, according to Trace.

To contact the reporter on this story: Tim Higgins at thiggins21@bloomberg.net

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net

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