Fitch cuts GM ratings further into 'junk' territory
NEW YORK, Sept 22 (Reuters) - Fitch Ratings on Monday cut its issuer default rating on General Motors GM.N further into 'junk' territory, citing concerns about the auto company's liquidity position and ability to raise fresh funds.
The agency cut GM's rating by one notch to 'CCC', the eighth-lowest speculative grade in its corporate rating scale.
In a previous downgrade, Fitch said it would cut ratings again if GM's capacity to refinance short-term maturities were impaired, or if its cash position fell below $15 billion.
"Fitch believes that GM would reach minimum required levels of available liquidity within the next 12 months without access to external capital," analysts said in a note. "Contributing factors include weakening overseas results and the impact of the credit crisis on GM and GMAC's ability to finance retail sales.". For more see [ID:nWNA4677].
Fitch is expecting operating losses, restructuring costs and supplier issues to continue to drain cash through 2009.
"External sources of capital for GM remain limited, indicating that liquidity drains will accelerate through year-end 2008," said the note.
Fitch said it is "highly probable" that GM will attain federal financing in the near term, although the amount, terms, structure and timing of any loan are uncertain.
"In all, Fitch believes that GM will be challenged to raise financing in an amount that exceeds $10 billion, and will therefore be unable to offset expected liquidity drains over the next 12 months," said the note.
GM has made progress in cutting costs, although the process has not kept pace with the decline in revenues. The rating agency is expecting that losses from operations will extend into 2010 as the company struggles to complete the restructuring of its work force, manufacturing footprint and product line-up.
"With the rapid migration of the market to more fuel-efficient vehicles, GM's product lineup will remain misaligned with market demand over the near term," it said.
Separately, Standard & Poor's said Monday it is sticking with its 'B-'rating for GM, the sixth-lowest investment grade, after the company on Friday said it was drawing down the remaining $3.5 billion of its secured revolving credit facility.
"This action underscores the anxious state of the capital markets," S&P said in a statement.
If the current stress in credit markets continues, it could delay or complicate GM's plans to raise an additional $2 billion to $3 billion from secured debt issuance and another $2 billion to $4 billion from asset sales, said the agency.
GM said it will use proceeds from the draw to retire $750 million of debt maturities coming due in October. The funds would also be available to pay Delphi Corporation more than $1.2 billion as part of its reorganization efforts, if a court approves revised agreements between the two companies submitted Sept. 12. [ID:nN19384642]. (Reporting by Ciara Linnane; Editing by James Dalgleish)
