DETROIT — Two major rating agencies cut the debt rating of General Motors further into junk status on Tuesday after the company announced a plan to improve its liquidity by refinancing $5.6 billion in loans. þþG.M., which plans to eliminate 30,000 jobs and close 12 factories as part of an extensive overhaul, said it would offer banks collateral and more favorable terms to extend its credit package through 2011. The company's existing loans are scheduled to mature in 2008.þþGina Proia, a General Motors spokeswoman in New York, said refinancing the loans was ÿa positive action toward additional financial flexibility for G.M.ÿþþAlthough the proposal would remove uncertainty about G.M.'s ability to obtain capital during the overhaul, analysts said that unsecured bondholders would be less likely to recover their investments in the event of a bankruptcy.þþStandard & Poor's reduced its rating of G.M.'s senior unsecured debt to B– from B; and Moody's Investor service dropped its rating to Caa1 from B3. The ratings are six and seven notches below investment grade, respectively, and both agencies said they might lower their ratings again in coming months. þþFitch Ratings affirmed its B rating on G.M.'s unsecured debt but said it would keep the company under review for a possible downgrade until disagreements over wages and benefits at the Delphi Corporation were resolved. Union workers at Delphi have threatened to strike if a bankruptcy judge allows the company, G.M.'s largest parts supplier, to cut costs sharply by voiding its labor contracts.þþÿClearly what we're looking for is no major supply disruptions that could end up shutting down production at G.M.,ÿ Mark Oline, a Fitch analyst, said.þþG.M.'s overall corporate credit ratings were unchanged on Tuesday. Ratings for G.M., which lost $10.6 billion in 2005, and the Ford Motor Company have been in junk territory since last year, and both are under review for possible downgrades.þþS.& P. said it would decide by the end of the month whether to lower Ford's rating because turnaround efforts did not appear to be progressing as quickly as expected.þþTuesday's action by S.& P. and Moody's did not come as a surprise. After G.M. disclosed this year that it might have difficulty with access to its credit line, rating agencies had warned that they might issue downgrades if the automaker began issuing collateral to lenders. þþShares of G.M. fell 2.7 percent, or 70 cents, to close at $25.65.þþAnalysts are awaiting the results of a buyout program offered to 135,000 union workers at G.M. and Delphi. Leaders of the United Automobile Workers union said at the group's annual convention last week that a combined 33,000 applications from the two companies had been submitted; the deadline is Friday.þþÿG.M. still has a long road ahead of it,ÿ J. Bruce Clark, a senior vice president at Moody's, said in a statement. ÿAnd there isn't much likelihood of positive movement in the rating until the company can stem its loss in market share, show that it can preserve the profitability of its new line of large trucks and S.U.V.'s, achieve a viable U.A.W. contract in 2007 and get on track for generating positive free cash flow for 2007.ÿþþ
Source: NY Times
