S&P Warns on GM, Chrysler Debt .
WSJ.Com, 04-10-09
As the government increased pressure on General Motors Corp. and Chrysler LLC to be tougher on creditors, Standard & Poor's ratcheted down its recovery projections for lenders to the auto makers.
S&P on Friday reduced its recovery rating for Chrysler's $7 billion of first-lien loans held by major banks and institutions, saying they can expect a payout of 30 to 50 cents on the dollar if the auto maker files for bankruptcy. That may be lower, S&P said, if Chrysler gets debtor-in-possession financing because those lenders typically get paid back first.
Some lenders are hoping for Chrysler recoveries closer to 70 cents on the dollar. The Treasury Department has indicated lenders may get just 15 cents.
The prognosis for GM's secured debt holders was better; they can expect payments of 70% to 90% in event of default. However, the ratings firm said its estimates exclude the possibility of debtor-in-possession financing.
GM has until the end of May to strike a deal with stakeholders; Chrysler has until the end of April. Bankruptcy experts have called a filing by the two companies likely.
S&P cut ratings on the companies' secured debt, which is backed by the rights to the auto makers' assets should they default. S&P warned that large parts of Chrysler likely would be broken up and sold if it files for bankruptcy.
S&P said a Chrysler bankruptcy filing likely would occur at the end of April or soon after if the company can't finalize a pact with Italy's Fiat SpA, win concessions from its main union and secured lenders, or otherwise satisfy the White House.
Meanwhile, the Treasury market was closed for the Good Friday holiday. On Thursday, the 10-year note fell 23/32, or $7.1875 per $1,000 face value, to 98 15/32. Its yield rose to 2.930%, from 2.847% Wednesday, as yields move inversely to prices.
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