General Motors Co., said to be exploring as much as another $5 billion in short-term credit, is seeking to secure low borrowing costs as it pours billions in cash into new products and pension obligations.
GM may seek $4 billion to $5 billion in additional revolving credit from some of the lenders that provided its current line of credit, said a person familiar with the discussions who asked not to be identified because the plans are private. GM declined to comment in an Aug. 24 e-mail.
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The move should lock in the Detroit-based automaker's ability to borrow at good rates and give it capacity similar to Ford Motor Co., which has $9.3 billion in revolving credit facilities. GM has "substantial cash requirements going forward," including pension obligations and reinvesting in operations, according to an Aug. 3 regulatory filing.
"Money is really cheap now," Dennis Virag, president of Automotive Consulting Group in Ann Arbor, Michigan, said yesterday in a telephone interview. "They don't need it today but they do have obligations that they're going to have to tap their cash reserves for."
Borrowing costs for high-yield, high-risk companies are at the lowest level in more than 14 months. Yields declined to 7.318 percent as of Aug. 24, down from this year's high of 8.465 percent on Jan. 3 and the lowest since June 1, 2011, according to the Bank of America Merrill Lynch U.S. High Yield Master II index. GM is rated Ba1 by Moody's Investors Service and an equivalent BB+ at Standard & Poor's, both the highest levels of speculative grade.
GM had $32.6 billion in cash and marketable securities on hand on June 30. It also has a $5 billion revolving credit line that was set up in October 2010, according to the filing.
"While we do not believe that we will draw on the secured revolving credit facility to fund operating activities, the facility provides additional liquidity and financing flexibility," GM said in the filing.
The company was revamped in a government-backed bankruptcy in 2009. GM in 2011 took back the title of the world's top seller of cars and light trucks from Toyota Motor Corp. Chief Executive Officer Dan Akerson is trying to boost sales in the U.S., where the automaker's share slid to 18 percent through July from 20 percent a year earlier. Akerson also wants to end losses in Europe that have totaled $16.8 billion since 1999.
GM has already made efforts this year to reduce its pension obligations. In June, the company announced it was offering lump-sum payments to about 42,000 salaried retirees and shifting plans to a Prudential Financial Inc. unit, eliminating about $26 billion in the automaker's pension obligations.
The automaker ended last year with a $134 billion pension obligation. Its global pension plans were underfunded by $25.4 billion at the end of 2011, up from $22.2 billion a year earlier, according to federal filings.
Akerson is also looking at ways to improve GM's customer and dealer financing. GM in July made a bid for Ally Financial Inc.'s international operations, which, if successful, could more than double the consolidated assets of GM Financial Co., the automaker's lending arm. Ally used to be known as GMAC Inc. and had been GM's financial-services unit.
Ally, which in May said it was putting its ResCap mortgage subsidiaries in Chapter 11 bankruptcy, is also seeking to divest more than $30 billion of assets in Canada, Mexico, Europe and Latin America.
"We're interested in it, but we're not going to bleed to buy it," Akerson said in May of Ally's international operations. "We're the natural buyer."
The negotiations about the new credit were reported Aug. 24 by the Wall Street Journal, which cited people with knowledge of the discussions whom it didn't identify. The newspaper also said GM hadn't made an official request to banks.
Also on Aug. 24, GM's issuer-default rating was raised by Fitch Ratings to BB+, the highest non-investment-grade level, from BB.
The change reflects GM's "continued positive free cash flow generating capability" and "very low leverage," Fitch said in a statement.
GM slipped 0.7 percent Aug. 24 to $21.18 in New York. The automaker has slid 36 percent since its November 2010 initial public offering. The U.S. still holds a 32 percent stake in the company.