GM debt at risk from oil prices, GMAC weakness

NEW YORK (Reuters) - General Motors Corp's GM.N bond prices may be dragged down by the company's potential exposure to the struggling housing market and a costly supplier strike, despite better-than-expected first-quarter results.

General Motors on Wednesday posted a smaller-than-expected loss as sales gains in Asia and Latin America overshadowed a slump in the U.S. market.

The cost to insure GM's debt for five years fell to 14.5 percent upfront, from 17.7 percent, plus an annual premium of 5 percent, according to Markit Intraday. This means it would cost $1.45 million to insure $10 million for five years, plus $500,000 per year.

But Wednesday's gains may be short-lived as rising oil prices that cut demand for GM's cars in the United States spell challenging times ahead for the automaker, analysts said.

Shelly Lombard, high-yield bond analyst with credit market research firm Gimme Credit, said she is not going to change her "underperform" recommendation on GM despite the better-than-expected results.

"Things that are going wrong for them in the U.S. -- the strike and (rising) gas prices -- are not showing signs of abating, and heaven forbid the international growth slows down, then they have a problem on their hands," Lombard said.

General Motors posted a net loss of $3.25 billion in the first quarter compared with a profit a year ago due to waning demand in North America of its most profitable vehicles and a costly supplier strike.

The automaker said a two-month United Auto Workers strike against its major supplier, Detroit-based American Axle & Manufacturing Holdings Inc (AXL.N), cost it 100,000 units of production and hurt first-quarter results by about $800 million.

The impact on cash flows was $2.1 billion and analysts were concerned about a negative $3.8 billion cash flow in the quarter even though total cash was a hefty $23.9 billion.

Another worry is GM's exposure to finance company GMAC and bankrupt auto parts supplier Delphi Corp DPHIQ.PK.

"Liquidity is a bit of an issue, not so much because of maturing debt but because of unexpected things such as the Axle strike, GMAC and how much more they are going to have to give to Delphi," Lombard said. "Everywhere they turn, somebody has their hand out."

In the first quarter, GM took a $1.45 billion charge for its remaining 49 percent investment in GMAC and a $731 million charge for its exposure to Delphi.

GMAC this month posted a first-quarter loss of $589 million and warned it may not be profitable again until 2009 because of falling home prices and tight credit markets.

Sean Eagan, managing director of independent credit-rating firm Egan Jones Ratings Inc, said the automaker might have to provide financial support for GMAC if the housing market continues to deteriorate.

"GM has massive exposure as a result of its finance operations," Eagan said.

Moody's Investors Service last week changed its outlook on GM to negative from stable on concerns that GMAC's problems might hurt its ability to help fund purchases of GM's vehicles.

A negative outlook indicates GM's rating is more likely to be cut over the next 12 to 18 months. GM is rated "B3," six steps below investment grade.

Kip Penniman, an analyst at KDP Investment Advisors Inc, said he maintains a hold recommendation on GM's notes, but said debt prices could be affected by factors outside of GM's control: the strike, potential labor problems and Delphi's failure to emerge from bankruptcy.

General Motors' 8.375 percent bonds due in 2033 rose to 76.25 cents on the dollar, from 74.625 cents on Tuesday, according to MarketAxess.

(Reporting by Anastasija Johnson; Editing by Leslie Adler)