Bulletin: General Motors Co. Ratings Unaffected As IPO Completion Nears
|Publication date: 17-Nov-2010 10:33:17 EST|
NEW YORK (Standard & Poor's) Nov. 17, 2010--Standard & Poor's Ratings Services today said that General Motors Co.'s nearing completion of an IPO of common stock is a positive for the company's future capital-raising prospects and for normalizing its ownership structure, but that this has no effect on the rating. On Oct. 7, we assigned our 'BB-' corporate credit rating with a stable outlook on GM. The rating was not dependent on completion of an IPO, nor did it reflect any expectation of extraordinary intervention from the current majority shareholder, the U.S. Treasury. GM reported that the Treasury would own 33.3% of the company if the common stock overallotment is exercised in full, down from 60.8% currently. The purpose of the IPO is to begin to shift ownership of GM to the public from the three main shareholders: the U.S. Treasury, the United Auto Workers union, and the Canadian government. GM is not expected to receive any proceeds from this common stock offering; however, the company could receive more than $4 billion in net proceeds from a preferred stock offering that is being sold in conjunction with the IPO. These funds would bolster GM's already large cash position ($33.5 billon at Sept. 30). The company reported third-quarter revenues of $34 billion and a global EBIT margin of about 6.7%. In the third quarter, GM reported an EBIT margin for North America of 9.9%, better than the 7.9% reported in the second quarter. As we have previously noted, we believe it will be difficult for GM to significantly improve this level of profitability in the near term, and margins may decline as costs increase and production flattens or declines on a sequential basis. The rating on GM reflects, among other factors:
- Our expectation that GM can sustain its return to profitability in North America, even if EBIT margins do not improve significantly;
- The contribution from GM's market shares in the growth markets of Brazil (No. 3) and China (No. 1), where we expect sales to remain vibrant although potentially volatile;
- Our view that GM will continue to generate positive free operating cash flow (before any large voluntary pension contributions) in its global automotive operations;
- Our assumption that GM will use a portion of its substantial cash balances to address its massive unfunded global pension liabilities (underfunded in the U.S. by $17.1 billion as of the end of 2009; the majority of GM's non-U.S. pension liabilities are not subject to funding requirements); and
- The company's stand-alone credit profile, as we do not expect any extraordinary intervention from the current majority shareholder, the U.S. Treasury.
For further details on our rating, please see the full analysis on General Motors Co., published Nov. 11, the news release on General Motors Holdings LLC, published Oct. 28, and the recovery report on General Motors Co., published Oct. 28, all on RatingsDirect.
|Primary Credit Analyst:||Robert Schulz, CFA, New York (1) 212-438-7808;|
|Secondary Contact:||Dan Picciotto, CFA, New York (1) 212-438-7894;|
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