Sic transit gloria mundi --------------------------------------------------- December 13, 2005 S.& P. Cuts G.M. Rating to Lowest in 52 Years By MICHELINE MAYNARD DETROIT, Dec. 12 - Standard & Poor's Ratings Services cut its rating on General Motors' debt two more notches into junk status on Monday, putting the automaker at the lowest level in the 52 years that S.& P. has been assessing its creditworthiness. And if G.M.'s financial position continues to deteriorate, Scott Sprinzen, an automobile analyst for Standard & Poor's, said, it is "not far-fetched" that G.M. may ultimately be forced to seek bankruptcy protection to restructure its debt and its labor contracts. G.M., the world's biggest auto company, reiterated Monday that it had no intention of seeking Chapter 11 bankruptcy protection. A G.M. spokesman, Jerry Dubrowski, said G.M. has "an aggressive and well-thought-out strategy to turn around our North American business," which has lost more than $4 billion this year. Nonetheless, the S.& P. ratings cut and bankruptcy warning threw fuel on the smoldering speculation that G.M. would be forced to seek court protection. Although other industry analysts have warned that the possibility exists, the debt-rating agency is privy to confidential G.M. information, which it uses to assess the company's risk of default. The ratings agency, in a harshly worded report, cut its rating on G.M.'s corporate debt to B, from BB-, with negative implications, and reduced its rating on G.M.'s short-term debt to B3 from B2. It said its outlook for G.M.'s debt was negative, meaning it could face another downgrade in the next two years, but it removed both types of debt from CreditWatch, meaning another cut was not imminent. The B rating is the lowest since 1953, when S.& P. gave its first rating of AAA to the company's debt. The downgrade marks the third ratings cut in the last year for G.M., and its second descent into speculative grade. The rating is below those G.M. held during its fiscal crisis in the early 1990's. By contrast, G.M. held an investment grade rating of A or higher from 1995 through 2001, when it basked in strong sales of profitable sport utility vehicles and pickup trucks. And it held the AAA rating from the 1950's through the early 1980's. This year, however, G.M. has been hit by a deep financial crisis. It lost money in four of the last five quarters, and through November, its market share in the United States was 26.2 percent, down 1.3 points from 27.5 percent a year ago. Despite all that, its chief executive, Rick Wagoner, has steadfastly rejected speculation that G.M. may have to join its biggest parts supplier, the Delphi Corporation, in seeking bankruptcy protection. Mr. Wagoner points to the $19 billion in cash that G.M. has on hand, and its array of global assets that can be sold to raise cash. Mr. Sprinzen said of a bankruptcy filing, "At this juncture, it's our feeling that this isn't a far-fetched conclusion, if the deterioration we've seen over the past few quarters is continuing." Mr. Dubrowski at G.M. said the company was making some progress in its turnaround efforts, noting that G.M. had reached agreement with the United Automobile Workers union on historic, though modest, savings on its annual health care costs. He added that G.M.'s plan was "not a short-term strategy." But Robert Schultz, an S.& P. credit analyst, said the agency was pessimistic that the turnaround plan would work, adding that the agency expected G.M. might lose $5 billion in North America this year and post a $3 billion corporate net loss for 2005. "This year has witnessed a stunning collapse of G.M.'s financial performance," Mr. Schultz said in the report issued Monday. Although S.& P. does not consider G.M. to be at any more danger of a Chapter 11 filing than any other company with a B rating, Mr. Schultz said, "We felt we needed to spell it out." S.& P. did not cut its ratings on General Motors Acceptance Corporation, which also are in speculative grade, but it kept the financing company on CreditWatch, meaning that a downgrade was likely. On Monday, the S.& P. analysts said that they were keeping a close eye on G.M.'s efforts to sell a controlling interest in the unit. Depending on the buyer, and the amount of time that any deal could take to conclude, they said another ratings cut could occur. S.& P. first cut G.M.'s corporate rating into junk on May 9, reflecting fears about the company's financial outlook, and the impact that the bankruptcy filing at Delphi would have on G.M., which spun off the parts supplier in 1999. Delphi sought Chapter 11 protection in October, after failing to reach an agreement with G.M. on an assistance package. G.M. estimated the impact of a Delphi bankruptcy could be up to $12 billion, depending on the costs it may incur for pension and health care coverage for Delphi workers eligible to return to G.M. The companies recently accelerated their negotiations on a bailout plan. The Delphi bankruptcy is widely seen by analysts as the first move that could set off a dominolike wave of auto industry restructurings. John Casesa, an analyst with Merrill Lynch, said Monday that the cutbacks were long overdue. "Detroit has waited so long to address these deep-rooted fundamental problems that a massive restructuring, unlike anything the industry has seen before, is inevitable," Mr. Casesa said. He added, "This is really about taking apart and reassembling the domestic auto industry." Jeremy W. Peters contributed reporting for this article. * Copyright 2005The New York Times Company
