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
“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
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.