GM, Chrysler Ratings Are Cut by S&P as Deadlines Loom (Update1)

GM, Chrysler Ratings Are Cut by S&P as Deadlines Loom (Update1)
April 10 (Bloomberg) -- General Motors Corp. and Chrysler LLC had
ratings cut on some of their debt by Standard & Poor’s as the automakers face government deadlines to restructure or file for bankruptcy.
GM’s $4.5 billion senior secured revolving credit facility was reduced to CCC- from CCC, or nine grades below investment quality, S&P said today in a statement. S&P dropped its recovery rating to 2 from 1, saying lenders may recoup 70 percent to 90 percent in a default by Detroit-based GM.
“The lowering of the rating on the revolving credit facility reflects our view of persistently weaker demand for light vehicles in North America,” said Greg Maddock, an S&P analyst. Assets backing the debt also are declining, he said.
S&P’s actions underscored doubts about whether the companies, propped up with $17.4 billion in federal loans, can meet President Barack Obama’s directives to shrink debt, chop labor costs and revamp operations. They risk losing their U.S. aid and be pushed into government-ordered bankruptcies.
The downgrades for GM, the biggest U.S. automaker, and No. 3 Chrysler didn’t include the possibility of further government funding, S&P said. Obama’s auto task force said it would help finance GM until the end of May and Chrysler until April 30.
Likelihood of Default
GM’s corporate-credit rating was left unchanged at CC, which S&P said reflected “our view of the likelihood that GM will default -- through either a bankruptcy or a distressed debt exchange.”
Chrysler’s senior secured first-lien term loan due 2013 was lowered to CC from CCC, and a senior secured second-lien term loan due 2014 was reduced to C from CC, or 11 grades below investment quality. S&P reduced its recovery rating to 4 from 1, projecting lenders could get back 30 percent to 50 percent in a default by closely held Chrysler.
GM and Chrysler are both working to reduce debt and labor expenses.
GM is meeting this week and next with a team from the U.S. Treasury to craft a revised plan to save the company. Lenders for Auburn Hills, Michigan-based Chrysler are holding meetings and exchanging proposals with the Treasury to cut the carmaker’s debt, people familiar with the situation have said.
Civis Romanus Sum

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