UPDATE 1-S&P says $25 bln auto sector loan won't lift ratings
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NEW YORK, Oct 2 (Reuters) - Standard & Poor's said on Thursday the U.S. government's $25 billion loan to help the ailing auto industry build more fuel-efficient vehicles will not lift credit and recovery ratings.
General Motors GM.N, Ford Motor Co (F.N) and Chrysler LLC DCX.N stand to benefit from the low-cost funding, at a time when tight credit market conditions are making it prohibitively expensive to raise funds, said S&P analyst Gregg Lemos Stein.
Certain suppliers and potentially even foreign companies with plants in the United States may also be helped, he said.
"But which automakers or suppliers receive funding, how much, and when remains unclear," he said in a report.
S&P currently rates General Motors and Ford debt at 'B-', a full six notches into speculative, or 'junk' grade. The agency has a 'CCC+' rating on Chrysler, or seven notches into junk territory.
The loans will slow the erosion of liquidity at the Michigan-based automakers by funding at least part of their capital spending, the analyst said.
"However, in the near term, these loans will not remove the most pressing concerns that are leading to the automakers' massive cash outflows and weakened financial risk profiles," he said.
These include the weak global economy, falling demand in the United States for light vehicles, the continued shift in consumer appetite away from larger and more profitable vehicles and the high cost of steel and other raw materials.
"We recognize that longer term, these loans could help the automakers improve their business risk positions by overhauling their vehicle line-ups to better match consumer demand," said Lemos Stein.
"Still, it will be a long time before we can see how receptive consumers will be to the future fuel-efficient vehicles that will result from this program and, just as important, whether the automakers can sell them at a profit," he said.
S&P is expecting the loans to be unsecured obligations, which makes it unlikely they will have any impact on the recovery ratings of the automakers' secured debt.
Ford's unsecured and subordinated debt have recovery ratings of '6', which indicates an expectation of 0-10 percent chance of recovery in the event of a payment default, said the analyst.
GM's unsecured debt has a recovery rating of '4', indicating an expectation of 30 to 50 percent chance of recovery.
The Treasury Department's $700 billion bailout plan, the Troubled Assets Relief Program, or TARP, may have a considerable impact on the automakers if it allows them to shed troubled car loans, said the analyst.
However, the TARP program, which has overshadowed the auto industry loan program in the past week, is focused mainly on toxic mortgage loans and may not include other kinds of troubled debt.
Still, there could be an indirect benefit, if the package relieves anxiety in the credit markets and improves liquidity.
"The tight credit markets have been a major factor in the progressively weaker U.S. light-vehicle sales this year," he said. (Reporting by Ciara Linnane, Editing by Gary Crosse)
