General Motors: The Biggest Credit Risk of All Time?
Posted by Heidi N. Moore
General Motors owes $76 billion. If the auto maker makes a conventional bankruptcy filing, it will have to borrow another $103 billion from the cash-strapped U.S. government and a syndicate of as many as 70 struggling lenders.
Is this the biggest credit risk of all time?
It is a truism in the world of bankruptcy that, no matter how risky the loan, nearly every company has always paid back the money that carried it through the bankruptcy process. (The one exception is Winstar Communications).
But a bankruptcy filing from GM would the largest ever. The
company’s recovery plan, submitted to the U.S. government last week, estimates that a two-year bankruptcy reorganization, including asset sales and a cleaned-up balance sheet, would cost $86 billion in government financing and up to another $17 billion from already-troubled banks and lenders.
Lenders–and the U.S.–are wary that they won’t get paid back. Their fears have good reason. Any good loan is based on the security of the collateral, and GM’s collateral base is eroding.
The auto maker has been struggling with disappointing financial results
going back nearly five years.
including a $10.6 billion one in 2005, a record
loss of $38.7 billion in 2007, and it was on track for an even worse 2008, after posting $3.3 billion, $15.5 billion and $4.2 billion of losses in the first three quarters of the year.
And the balance sheet isn’t even GM’s biggest problem. While high costs caused it to burn through $6.9 billion of cash in the third quarter alone, GM has deeper operational problems to resolve. For too long it has depended on sport-utility vehicles, trucks and other gas-guzzlers, missing or ignoring a host of signals about the necessity for fuel-efficient vehicles. Standard & Poor’s quantified GM’s dipping market share in a report last week: “Chevrolet, Buick, Cadillac, Oldsmobile, Pontiac, Saturn and SAAB models accounted for 18.5% of total new U.S. car registrations (including imports) in 2008, versus 19.4% in 2007, 20.7% in 2006 and 22.6% in 2005.
Comparable figures for Chevrolet, GMC, Pontiac and Oldsmobile trucks were 26.6%, 27.6%, 27.1% and 28.5% in the respective years.”
It is a lot to
ask of troubled U.S. banks that they lend to a company in such terrible shape. Consider that last week Roche Holding–which has a stellar investment-grade credit rating–raised $16 billion from investors through the sale of bonds specifically because it would have been too difficult to ask banks to provide the cash. The U.S. government has pledged more than $1 trillion of support to the U.S. banking system in order to free up credit, and even so rumors of bank nationalizations are swirling. For the government to ask that same banking industry to take on a highly questionable credit like GM would be like tying two stones together to see if they float.
Then there there is the capacity in the credit markets. Buyers of corporate debt have outdone themselves in the past two months, snapping up parts of a $22.5 billion bridge loan to Pfizer and that $16 billion from Roche to help finance its proposed purchase of the 44% of Genentech it doesn’t already one. And bank lending has been on the rise since December,
according to new numbers from the U.S. Treasury. But if GM debt is forced on the system, will that credit thaw continue? It is a question the U.S. government might want to consider?
http://blogs.wsj.com/deals/2009/02/...biggest-credit-risk-of-all-time/?mod=yahoo_hs
- mitico, insieme alla finta P/R di Mark creduta da Shark... adesso però basta o veniamo sbattuti nel cazzeggio... 
..pensa che qualche sprovveduto lo ha dato anche a me...
