GM debt at risk from oil prices, GMAC weakness

NEW YORK (Reuters) - General Motors Corp's (GM.N: Quote, Profile, Research, Stock Buzz) 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: Quote, Profile, Research, Stock Buzz), 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.