General Motors Company
) succeeded in near doubling its credit facility of $5 billion in
a bid to strengthen its cash reserve, as planned. The automaker
acquired $11 billion in new credit lines from 35 financial
institutions in 14 countries.
The new credit facility includes a three-year $5.5 billion and
five-year $5.5 billion lines, replacing the existing $5 billion
line that was supposed to expire in 2015. It boosted the
company's available cash and credit to $42 billion.
Both Moody Investors Service - the credit-rating arm of
), and Standard & Poor's have assigned investment-grade
rating to the credit line. However, the overall corporate credit
ratings of "BB+" (highest junk rating) by S&P and "Ba1" (one
notch below investment grade) by Moody's are kept at the same
GM did not specify how it would utilize its fattening credit
line. However, it can be speculated that the company will mostly
use the money for buying back stock from the U.S. Treasury (UST)
in an effort to shed its "Government Motors" tag gradually.
Apart from the stock buyback, a portion of the credit line can be
diverted to save the company's ailing Opel operation in Europe,
which has lost $747 million last year and further expects to lose
more than $1 billion in 2012 due to waning car sales, high fixed
costs and excess production capacity.
GM filed for bankruptcy in mid-2009. Post bankruptcy, the U.S.
government acquired 61% stake in GM in exchange for a bailout
loan of $49.5 billion. However, after several repayments
amounting to $23.1 billion, the UST was left with 500 million
shares of GM, which is equivalent to 26.5% stake in the company.
In order to recoup its remaining $26.4 billion loan to the
automaker, the UST would need to sell its remaining shares of GM
at nearly $53 each. However, the sad news is that the current
price of GM is not even close and the government may need to wait
for a long time to get its money back. Currently, shares of GM
are hovering around $25, less than half of what is needed.
Last week, GM posted a 9.7% fall in earnings to 93 cents per
share (excluding special items) in the third quarter of the year
from $1.03 in the corresponding quarter a year ago. However,
earnings per share in the quarter far exceeded the Zacks
Consensus Estimate of 61 cents.
Total profit ebbed 5.9% to $1.6 billion from $1.7 billion a year
go. The decline in profit was attributable to lower profits from
North America and increased loss in Europe.
Revenues in the quarter grew 2.5% to $37.6 billion, surpassing
the Zacks Consensus Estimate of $36.3 billion. Worldwide sales
volume inched up 1.6% to 2.3 million units from 2.2 million units
a year ago. However, total market share declined to 11.6% from
12.1% in the third quarter of 2011.
Operating income fell 11.2% to $1.6 billion from $1.8 billion a
year ago. However, adjusted earnings before interest and tax rose
4.5% to $2.3 billion from $2.2 billion a year ago.
GM is a leading global automotive company. The company has
presence in almost 120 countries and has facilities located in 31
countries. Despite its enormous size, the company currently
retains a Zacks #3 Rank on its stock, which translates to a
short-term rating of Hold, due to its significant exposure in
troubled Europe and the global economic weakness.
GENERAL MOTORS (GM): Free Stock Analysis
MOODYS CORP (MCO): Free Stock Analysis Report
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