UPDATE: GM To Raise $1.5 Billion Loan As Cash Concerns Mount
In a statement, the automaker, which lost
GM could face problems borrowing once its shareholder equity becomes negative
in early 2007, as the company's bond indentures could prohibit it from pledging
certain assets to back loans. GM is looking to avoid such roadblocks by simply
securing a loan before the end of this year, spokeswoman
GM's shareholder equity will turn negative due to new accounting standards forcing the auto maker to account for all of its future benefit obligations. The benefit obligations, when pooled with all other liabilities, will outweigh the company's assets. The accounting change does not affect cash flow.
The latest loan follows GM's decision earlier this year to extend a
Moody's Investors Service assigned a Ba3 rating to the proposed
Fitch Ratings assigned a BB/RR1 rating, one notch higher than the Moody's grade.
Liquidity Has Dwindled
GM's liquidity has come under fresh scrutiny even as the company works to implement a massive turnaround in its North American operations. In various public disclosures, the company has said its liquidity position hinges completely on its ability to turn around its North American operation, which continues to bleed red ink due to shrinking market share, high costs and falling production.
As of the end of the third quarter, GM reported
The pile of cash will be fattened significantly when GM closes the sale of a
controlling stake in its General Motors Acceptance Corp. unit to a group of
investors led by Cerberus Capital Management. GM plans to close the sale by
GM's negative cash flow remains a key concern for investors, who have seen an
alarming rate of cash burn as a reason to poke holes in GM's turnaround plan.
GM's bottom line has improved over the course of 2006, but the company posted an
adjusted operating negative cash flow, including special items, of
Cash Needed For Restructuring
GM is currently trying to broker a deal with top supplier and former
"Despite GM's continuing progress in establishing a sizable liquidity cushion, the company continues to face daunting operational and competitive challenges," Moody's said. "The increasingly competitive position of Asian manufacturers and the shift in consumer preference toward more fuel efficient vehicles will continue to severely pressure the company's share position."
J.P. Morgan Securities Inc. and Credit Suisse Securities LLC are the arrangers
of the proposed
Shares of GM ended Monday's session at
(END) Dow Jones Newswires