GM bonds now worth buying, JP Morgan says

NEW YORK, July 22 Tue Jul 22, 2008 10:03am EDT

NEW YORK, July 22 (Reuters) - Investors should buy bonds of General Motors Corp (GM.N) because the largest U.S. automaker has sufficient access to capital and its bonds have value relative to its peers, J.P. Morgan Chase & Co (JPM.N) said in a report on Tuesday,

GM's 7.2 percent notes due in 2011 have fallen $22 since February, and its 8.375 percent notes due in 2033 have fallen $26. Meanwhile, costs to insure its bonds against default with credit default swaps have widened by 1,160 basis points, the report said.

"We now believe the bonds and CDS represent relative value versus the market and its peers," analysts Eric Selle and Atiba Edwards co-wrote in the report.

J.P. Morgan's distressed analysis estimates the value of the bonds in a distressed liquidation at 34 percent, the report said.

GM will be able to boost its capital position with asset sales, capital market transactions, equity injections and internal cost-cutting, J.P. Morgan said.

Successful efforts by GM to bolster its liquidity and reduce its annual cash burn may mean an average of 32 percent total return over the next 12 months for GM bonds, the report said.

A GM bankruptcy, however, would mean an annual total return of negative 39 percent. (Reporting by Walden Siew; Editing by Kenneth Barry)