Fitch says looking at further GM cuts
Tue May 24, 2005 01:38 PM ET
reuters.com
NEW YORK, May 24 (Reuters) - Fitch Ratings on Tuesday said it will look at factors including General Motors Corp.'s (GM.N: Quote, Profile, Research) sales, production figures, outlook for next year and competition in deciding whether to cut the company's credit ratings further within the next nine months.
Fitch cut GM to junk status earlier on Tuesday, citing factors including high costs and weakening sales of the medium and large sports utility vehicles that have been a crucial source of profits for the world's largest automaker.
Fitch said the outlook for GM is negative, which signals the company's ratings could be cut again within the next 12 to 24 months. Fitch officials said on a conference call that the rating agency is watching GM's progress carefully over the next two or three quarters.
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GM says it "feels the pain" of cuts in debt rating
Tue May 24, 2005 01:17 PM ET
reuters.com
DETROIT, May 24 (Reuters) - General Motors Corp. (GM.N: Quote, Profile, Research) said on Tuesday that its finance arm "feels the pain" of cuts in the company's debt ratings to "junk" status.
"The automotive sector drives the level of ratings, GMAC, the financial services business, feels the pain of the these ratings," GM spokeswoman Toni Simonetti told Reuters.
She was referring to the run-up in borrowing costs at GM and General Motors Acceptance Corp. since Standard & Poor's cut GM's debt to non-investment grade on May 5. Fitch Ratings also cut GM to "junk" on Tuesday.
"We're clearly disappointed in the speed with which these rating agencies have moved us to a non-investment grade," Simonetti said.
"We clearly understand the issues and the challenges in the automotive sector, the North American automotive sector, and we're working aggressively to address those," she added.
Simonetti did not elaborate, but Fitch cited a protracted decline in sales of GM's gas-thirsty sport-utility vehicles and mounting competition in the truck market as driving forces behind its downgrade.
The world's largest automaker, which has been struggling to turn its U.S. automotive operations to profit, relies heavily on GMAC, its finance and lending arm, for financial support. But rising borrowing costs limit its future options for raising funds.
The combined S&P and Fitch downgrades could also force investment funds ineligible to hold junk bonds to sell billions of dollars of GM debt.
David Healy, an automotive analyst at Burnham Securities called Fitch's downgrade a "nonevent," however.
The bulk of the damage to GM and its investors was already done by S&P three weeks ago and many GM bondholders have already "bailed out," Healy said.
"My guess is it won't have much market effect," Healy said. "This thing has been telegraphed pretty well."
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GM bonds lowered to junk status by Fitch
Business First of Buffalo - 1:04 PM EDT Tuesday
buffalo.bizjournals.com
The bad news continues for one of the Buffalo area's largest employers.
Fitch Ratings has downgraded the bond ratings of General Motors (NYSE: GM) to junk, dropping the bonds to 'BB+' from 'BBB-' and maintaining the rating outlook as negative.
Standard & Poor's cut the automaker's bond rating several weeks ago.
Fitch cited the continuing decline in GM's North American sales of key mid-size and large SUV products, as well as increasing product and price competition in the large pickup market, and the impact those segments have on profits. GM's SUV year-to-date sales have fallen 20 percent.
Analysts also believe that declining volumes and profitability, coupled with lack of tangible progress in attacking manufacturing and legacy costs, particularly health care, will result in negative cash flow through 2006 at least. Projected health-care costs are expected to top $5.5 billion in 2005, and increase at a rate of $400-600 million per year.
In 2005, Fitch estimates that negative cash flow could be in the range of $6 billion.
GM employs some 3,000 workers locally. |
