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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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