DBRS Places GM Under Review with Negative Implications

DBRS has today placed the ratings of General Motors Corporation (GM or the Company) Under Review with Negative Implications. The rating action follows the Company’s announcement of various exchange offers (the Exchange) pertaining to $27 billion of the Company’s outstanding public debt. GM also unveiled a revised viability plan (the Revised Plan) concurrently with the Exchange. Pursuant to the Exchange, the Company is offering to exchange 225 shares of GM common stock for each $1,000 equivalent of principal amount plus the cash payment of accrued interest on its notes from the most recent interest payment date to the settlement date. As noted in the DBRS press release dated April 23, 2009, holders of the tendered debt would receive less than face value, which is considered a default under DBRS policy. Accordingly, upon the conclusion of the Exchange, the tendered debt would be assigned a rating of D.

DBRS observes that its offer of 225 shares of common stock (plus the cash payment of accrued interest) applies to each series of the Company’s notes, regardless of maturity. This includes GM’s 1.50% Series D convertible senior debentures due June 1, 2009. GM has also outlined a number of conditions necessary in order for it to execute the Exchange, including (but not limited to) the following:

(1) The tendering of at least 90% of the aggregate principal of outstanding notes.

(2) The U.S. Treasury agreeing to an issuance of at least 50% of pro forma GM common stock in exchange for the cancellation of at least 50% of GM’s U.S. Treasury debt as at June 1, 2009.

(3) A reduction of at least 50% of GM’s future Voluntary Employee Beneficiary Association (VEBA) related payments in exchange for GM common stock.

(4) Commitment of the U.S. Treasury to provide an additional $11.6 billion in funding to GM after May 1, 2009.

If the above conditions are not met and the Exchange is not concluded, the Company has indicated that it expects to seek relief under the U.S. Bankruptcy Code. In the event that the Exchange is successfully executed, GM’s debt and VEBA obligations would be materially reduced, providing the Company with significantly greater financial flexibility to weather the severe global automotive downturn. However, DBRS notes that the Company must further streamline its operations to reduce its rate of cash burn going forward. To this end, GM today also announced its Revised Plan, which is essentially an acceleration of the measures detailed in the Company’s business plan submitted February 17, 2009. The principal components of the Revised Plan are outlined below.

(1) Four core brands are to remain, Chevrolet, Cadillac, Buick and GMC. Pontiac is now slated to be phased out by the end of 2010, with the resolution regarding the Saab, Saturn and Hummer brands being moved forward to end of 2009.

(2) The Company is to reduce its number of assembly, powertrain and stamping plants from 47 (as of 2008) to 34 by the end of 2010 and 31 by the end of 2012.

(3) GM’s U.S. hourly employment is to be lowered from approximately 61,000 (as of 2008) to 40,000 in 2010 and 38,000 in 2011.

(4) The Company expects to reduce its number of dealers from 6,246 (as of 2008) to 3,605 by the end of 2010.

GM further indicated that, upon successful execution of the Revised Plan, the Company estimates that its North American operations should be able to achieve breakeven profit levels (on an adjusted EBIT basis) at U.S. industry annual volumes of ten million units.

As previously mentioned, upon conclusion of the Exchange, DBRS would assign a rating of D to the tendered debt. However, DBRS notes that this would not apply to GM’s Issuer Rating, which would be assigned a revised rating based on, among other factors, an assessment of the Company’s new capital structure upon the conclusion of the Exchange.

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

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

This is a Corporate rating.