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Fitch Ratings: GM Default is Near

Friday, 19 Dec 2008 12:16 PM

Fitch Ratings has downgraded the Issuer Default Rating (IDR) of General Motors Corporation to 'C', indicating that default is imminent.

The rating action reflects the terms of federal government assistance that were announced today, which include a reduction in the company's current debt load. Debt reduction is expected to take the form of a distressed debt exchange, which is a default under Fitch's methodology, although how the exchange is to be accomplished remains highly uncertain.

The ability of GM to use equity to address debt and VEBA obligations is very limited given the size of the obligations and GM's current market capitalization. The threat of a bankruptcy remains, given the terms of the federal assistance, and the maturity.

Fitch expects the current agreement will be significantly restructured prior to its maturity.

Recovery ratings for unsecured holders could move down further from current estimates of 10%-30%. Under GM's plan, unsecured holders could lose 50% immediately under a distressed debt exchange.

Recoveries will also be impaired by the potential elimination of any remaining value ascribed to GM's equity interest in GMAC, and the fact that government loans (or loan guarantees) will be placed in a senior position to exiting unsecured debt.

Changes to other liabilities, such as health care, and other changes to GMs cost structure will also be factored into the recovery analysis as details become available.

Fitch has downgraded the following ratings:

General Motors Corporation

--IDR to 'C' from 'CCC';

--Senior secured to 'CCC/RR1' from 'B/RR1';

--Senior unsecured to 'C/RR5' from 'CCC-/RR5'.

General Motors of Canada Ltd.

--Long-term IDR to 'C' from 'CCC';

--Senior unsecured to 'C/RR5' from 'CCC-/RR5'.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

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Fitch Ratings has downgraded the Issuer Default Rating (IDR) of General Motors Corporation to 'C', indicating that default is imminent. The rating action reflects the terms of federal government assistance that were announced today, which include a reduction in the...
gm,default,fitch
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2008-16-19
 

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