General Motors's Debt Costs Surge as GE Pulls Support
By: Administrative Account | Source: Bloomberg
March 22, 2005 7:23AM EST

March 22 (Bloomberg) -- General Motors Corp.'s borrowing costs rose to the highest in almost two years after the world's largest carmaker lost financial support from General Electric Co. The extra yield, or spread, investors demand to hold the automaker's euro-denominated debt due 2033 widened 40 basis points, or 0.40 percentage point, to 578 basis points, the most since the securities were sold in June 2003, as of 11:28 a.m. in London, according to Royal Bank of Canada prices. GM, the world's third-largest corporate borrower with $114.5 billion of bonds, on March 16 forecast its biggest quarterly loss since 1992, prompting Standard & Poor's to say it may lower the automaker's credit rating to below investment grade. GE, the world's No. 2 company by market value, yesterday cut short an agreement giving the carmaker's suppliers faster payment. ``The last thing you want to see is a liquidity provider pulling its support,'' Christophe Boulanger, an analyst at Dresdner Kleinwort Wasserstein in Paris. GE said it planned to stop funding a program that pays GM's parts suppliers within a few business days, rather than the 45 days GM typically takes to pay them. GE, which administered the program for GM, will stop funding at the end of June instead of providing support until the end of this year, GM spokesman Tom Hill said yesterday. The funding agreement allowed GE to terminate the program if S&P lowered the rating on GM's unsecured debt to BBB- with a ``negative outlook,'' Hill said. Fitch Ratings cut the carmakers' ratings to BBB-, one step short of high-risk, or junk, level, following GM's March 16 announcement. Moody's Investors Service also said it may cut GM's Baa2 rating to Baa3, one step short of junk. Cash Available GM and General Motors Acceptance Corp., the carmaker's finance unit, each have about $23 billion of cash available, Boulanger said. The company has about $70 billion of credit facilities available, of which about $50 billion was unused at the end of last year. It's ``a substantial amount compared to the $2 billion that has been canceled,'' Boulanger said. GM, based in Detroit, has about $16.5 billion of debt coming due this year, according to data compiled by Bloomberg. The annual cost of insuring $10 million of the debt of General Motor's finance unit for five years via credit-default swaps rose to around $500,000 today from $430,000 yesterday, according to Deutsche Bank AG prices.

To contact the reporter on this story: Jon Laycock in London at jlaycock@bloomberg.net. To contact the editor responsible for this story: Justin Carrigan jcarrigan@bloomberg.net. Last Updated: March 22, 2005 06:51 EST