DBRS Comments on GM’s Forthcoming Debt Restructuring Efforts

DBRS notes today that General Motors Corporation’s (GM or the Company) nearest debt obligation is a convertible debt payment due June 1, 2009, in the amount of $1 billion. DBRS further observes that under its current long-term rating definitions, a rating of D may be assigned not only upon payment default, but also in the instance where an issuer has made it clear that it will miss such a payment in the near future.

Presently, GM has a deadline of June 1, 2009 (imposed by the Obama administration) to revamp its restructuring plan in order to qualify for further long-term funding from the U.S. government. The restructuring must include, among other items, a targeted reduction of debt in excess of 70% from current levels. In the event that GM’s revised restructuring plan is not approved by the U.S. government, the Company would in all likelihood deplete its liquidity position below minimally sufficient levels and have to formally enter into bankruptcy proceedings.

As such, DBRS notes that GM is expected to announce in the near future a series of exchange offers pertaining to the restructuring of its automotive debt. DBRS would also consider the debt exchange as coercive given the likelihood that GM would file for bankruptcy or face a payment default in the absence of such an exchange. DBRS further observes that in all likelihood, GM’s forthcoming exchange offer will be disadvantageous to current bondholders in that those who choose to accept the offer would receive less than the original principal amount, which would be considered a default under DBRS policy. However, as none of the aforementioned events has taken place to date, GM’s long-term ratings remain at CC, with a Negative trend.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodology is Rating Automotive, which can be found on our web site under Methodologies.

This is a Corporate (Autos and Auto Parts) rating.