"GM bankruptcy not a remote possibility"

Discussion in 'Stocks' started by wilburbear, Dec 12, 2005.

  1. Saw this about 2 minutes before the close on scrolling news. Does it mean "bankruptcy? - no way". Or have they now opened the door a little to filing for bankruptcy?
  2. Time will tell!
  3. I agree......the wording is very bad. Can be taken either way.
  4. range


    Today, S&P cut GM's corporate credit rating two notches to single-B. Considering that downgrade, I suspect that the "not a remote possibility" language is referring to increasing perceived risk in GM.

    from: http://www2.standardandpoors.com/servlet/Satellite?pagename=sp/Page/HomePg&r=1&l=EN&b=10

    General Motors Corp. Ratings Cut To 'B/B-3', Outlook Negative

    Primary Credit Analysts:
    Robert Schulz, CFA, New York (1) 212-438-7808;
    Scott Sprinzen, New York (1) 212-438-7812;

    Publication date: 12-Dec-05, 12:56:22 EST
    Reprinted from RatingsDirect

    NEW YORK (Standard & Poor's) Dec. 12, 2005--Standard & Poor's Ratings Services
    said today that it lowered its corporate credit rating on General Motors Corp.
    (GM) to 'B' from 'BB-' and its short-term rating to 'B-3' from 'B-2' and
    removed them from CreditWatch, where they were placed on Oct. 3, 2005, with
    negative implications. The outlook is negative. (The 'BB/B-1' ratings on
    General Motors Acceptance Corp. [GMAC] and the 'BBB-/A-3' ratings on
    Residential Capital Corp. [ResCap] remain on CreditWatch with developing
    implications, reflecting the potential that GM could sell a controlling
    interest in GMAC to a highly rated financial institution.) Consolidated debt
    outstanding totaled $285 billion at Sept. 30, 2005.
    Standard & Poor's will hold a telephone conference call on Monday, Dec.
    12, 2005, at 3:30 p.m. Eastern Standard Time to discuss the rating action on
    General Motors (see the call-in details below). Robert Schulz and Scott
    Sprinzen, from the Standard & Poor's Corporate Auto Ratings Team, will be the
    speakers for the call. At the conclusion of their remarks, they will be
    available to answer questions.
    "The downgrade reflects our increased skepticism about GM's ability to
    turn around the performance of its North American automotive operations," said
    Standard & Poor's credit analyst Robert Schulz. If recent trends persist, GM
    could ultimately need to restructure its obligations (including its debt and
    contractual obligations), despite its currently substantial liquidity and
    management's statements that it has no intention of filing for bankruptcy.
    GM has suffered meaningful market share erosion in the U.S. this year,
    despite prior concerted efforts to improve the appeal of its product
    offerings. At the same time, the company has experienced marked deterioration
    of its product mix, given precipitous weakening of sales of its midsize and
    large SUVs, products that had been highly disproportionate contributors to
    GM's earnings. This product mix deterioration has partly reflected the aging
    of GM's SUV models, but with SUV demand having plummeted industrywide,
    particularly during the second half of 2005, it is now dubious whether GM's
    new models, set to be introduced over the next year, can be counted on to help
    restore the company's North American operations to profitability.
    In addition, GM is paring the product scope of its brands. The company
    has also announced recently that it will be undertaking yet another
    significant round of production capacity cuts and workforce rationalization.
    But the benefits of such measures could be undermined unless its market share
    stabilizes without the company's resorting again to ruinous price discounting.
    One recent positive development for GM has been the negotiation of an
    agreement with the United Auto Workers providing for reduced health care
    costs. Yet, this agreement (which is pending court approval) will only partly
    address the competitive disadvantage posed by GM's health care burden.
    Moreover, cash savings would only be realized beginning in 2008 because GM has
    agreed to make $2 billion of contributions to a newly formed VEBA trust during
    2006 and 2007. It remains to be seen whether GM will be able to garner further
    meaningful concessions in its 2007 labor negotiations.
    This year has witnessed a stunning collapse of GM's financial performance
    compared with 2004 and initial expectations for 2005. In light of results
    through the first nine months of 2005, we believe the full-year net loss of
    GM's North American operations could approach a massive $5 billion-–before
    substantial impairment and restructuring charges and that the company's
    consolidated net loss could total about $3 billion (again before special
    items). With nine-month 2005 cash outflow from automotive operations a
    negative $6.6 billion (after capital expenditures, but excluding GMAC), we
    expect full-year 2005 negative cash flow from automotive operations to be
    substantial. GMAC's cash generation has only partly mitigated the effect of
    these losses on GM's liquidity.
    Deterioration of GM's credit quality has limited GMAC's funding
    capabilities. On Oct. 17, 2005, GM announced that it was considering selling a
    controlling interest in GMAC to restore the latter's investment-grade rating.
    GM recently indicated that it is holding talks with potential investors. As we
    have stated previously, we view an investment-grade rating for GMAC as
    feasible if GM sells a majority stake in GMAC to a highly rated financial
    institution that has a long-range strategic commitment to the automotive
    finance sector. Even then, GMAC still would be exposed to risks stemming from
    its role as a provider of funding support to GM's dealers and retail
    customers. However, we believe a strategic majority owner would cause GMAC to
    adopt a defensive underwriting posture by curtailing its funding support of
    GM's business if that business were perceived to pose heightened risks to
    One key factor in achieving an investment-grade rating would be our
    conclusions about the extent to which financial support should be attributed
    to the strategic partner. We will continue to monitor GM's progress in this
    process and the potential for rating separation; however, if the timeframe for
    a transaction gets pushed out, or if there is further deterioration at GM,
    GMAC's rating could be lowered, perhaps to the same level as GM's. Ultimately,
    in the absence of a transaction that will significantly limit GM's ownership
    control over GMAC, the latter's ratings would be equalized again with GM's.
    The ratings on ResCap are two notches above GMAC's, its direct parent,
    reflecting ResCap's ability to operate its mortgage businesses separately from
    GMAC's auto finance business, from which ResCap is partially insulated by
    financial covenants and governance provisions. However, we continue to link
    the ratings on ResCap with those on GMAC because of the latter's full
    ownership of ResCap. Consequently, should the ratings on GMAC be lowered, the
    ratings on ResCap would likewise be lowered by the same amount. Or, if the
    ratings on GMAC are raised, as explained above, ResCap's ratings also could be
    Prospects for GM's automotive operations are clouded. The ratings could
    be lowered further if we came to expect that GM's substantial cash outflow
    would continue beyond the next few quarters due to further setbacks, whether
    GM-specific or stemming from market conditions. Even though the concern over
    the situation at GM's bankrupt lead supplier, Delphi Corp., was the primary
    factor behind the rating downgrade of Oct. 10, 2005, events at Delphi could
    precipitate a further review if GM were to experience severe Delphi-related
    operational disruptions or if GM agreed to fund a substantial portion of
    Delphi's restructuring costs. GM's rating could also be jeopardized if the
    company were to distribute to shareholders a meaningful portion of proceeds
    generated from the sale of a controlling interest in GMAC.
    GM would need to reverse its current financial and operational trends,
    and sustain such a reversal, before we would revise its outlook to stable.

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  5. Seems pretty straightforward wording to me. You just re-wrote it wrong......

    S&P: GM Bankruptcy "Isn't a Farfetched Possibility"
    Dec 12 at 15:58
    By Simona Covel, Of DOW JONES NEWSWIRES

    NEW YORK (Dow Jones)--A bankruptcy filing "isn't a farfetched possibility"
    for General Motors Corp. (GM), Standard & Poor's analysts said Monday following
    a two-notch ratings downgrade of the auto maker's credit.
    The possibility of a restructuring, however - either in or out of court -
    isn't any more acute than for other single-B-rated companies, the analysts said.
    S&P cut GM to single-B earlier on Monday, from double-B-minus.
    On a conference call with investors and analysts, S&P ratings officials
    faced a slew of questions on potential bankruptcy scenarios for the Detroit
    giant, as well as questions regarding GM's planned sale of a majority stake in
    its financing unit, General Motors Acceptance Corp.
    The ratings agency expressed concern that GM will be able to turn around
    its sagging North American sales. Pressure from rising healthcare costs and a
    possible worker strike at bankrupt parts supplier Delphi Corp. (DPHIQ) also
    weigh on the ratings outlook.
    S&P, though, left GMAC's double-B rating alone pending the outcome of the
    planned sale, which GM has said is designed to return the finance company to
    investment grade status.
    While S&P analysts said they view an investment grade rating as feasible
    for GMAC, their analysis is predicated on the idea that GMAC will be acquired by
    a highly-rated financial institution. Regarding the possibility that a private
    equity or other buyer could be involved, "we wouldn't get the same feeling of
    comfort from those alternative approaches," said S&P auto analyst Scott
    "It will be more difficult to get the desired investment grade outcome
    following other such approaches," he added.
    Monday's downgrade took some market participants aback. S&P indicated in
    earlier statements that it was planning to conclude a review of GM's ratings by
    mid-to-late January. However, Sprinzen said simply, "we did reach a conclusion (
    on the rating). We didn't think it was in anyone's interest to prolong the
    In response to the downgrade, GM spokeswoman Gina Proia said the company
    has " an aggressive and well-thought-out strategy to turn around our North
    American business, and we're making progress in some important areas."
    That progress, she said, includes GM's recently expanded plan to cut
    30,000 jobs and close operations at nine North American factories, for a total
    savings of $7 billion by the end of next year.
    "Certainly things would be much worse for the company if they hadn't taken
    this latest round of downsizing," Sprinzen said.
    GM's North American operations have bled more than $4 billion so far
    this year, but the company still has $19 billion in cash reserve. Even so,
    said S&P's Sprinzen, "it would be possible to file (for bankruptcy) with a great
    deal of liquidity still available to them."
    If a sale of GMAC falls through, Sprinzen said, its ratings will be
    lowered to that of its auto maker parent. An investment grade rating for GMAC
    isn't out of the question if GM sheds, for example, its residential mortgage
    unit Residential Capital Corp., Sprinzen said. "We would have to see how the
    whole transaction is structured," he said.
    If no component of GMAC is sold and it remains a wholly-owned part of GM,
    Sprinzen noted that in the case of a GM bankruptcy GMAC would probably end up in
    court, too. "It's our view that it's most likely that a GM filing would
    ultimately precipitate one at GMAC," he said.
    GM has about $285 billion in total debt outstanding. Most of that is
    held by GMAC.
    -Dow Jones Newswires
  6. Yes, this is the way I initially read it - that the door is now opening a little for a bankruptcy filing.
  7. If they go bankrupt and get rid of their huge underfunded pension fund... then the PBGC gets the first dibs on assets. So GM won't go bankrupt yet, as they still have lots of cash to burn.
  8. The PBGC should have #1 priority over the assets of GM in order to fund all pension liabilities and maybe even make a small profit.

    I hope GM bond and shareholders get fucked in the ass. Better them than the taxpayer!
  9. Bambino


    Taxpayers should not have to foot the bill on this one. Bailouts are a ghost of the past so let GM file for bankruptcy. Nobody should be immune from the beast we call capitalism.

    Bondholders should have dumped their positions with the first debt downgrade.
  10. For the sake of Capitalism and the future of the United States of America, GM must not be allowed to receive a government bailout.
    #10     Dec 13, 2005