S&P cuts GM’s rating, Toyota loss seen at $5 bln

Standard & Poor's cut its rating on General Motors Corp's (GM.N) $4.5 bln senior secured revolving credit facility deeper into junk, due to a shrinking pool of assets available to repay lenders and weak demand for its light vehicles while Toyota’s operating loss could balloon to over 500 bln yen ($5 bln) in the year to March 2010, as the global economic crisis hits car sales, the Nikkei business daily said.
Sales of automobiles could tumble to about 6.5 million units during the current year, falling 7 million units for the first time in six years, Nikkei said.
"Basically GM is shrinking in terms of the assets they secure," Standard & Poor's recovery analyst Greg Maddock said. "The debt stays the same."
S&P lowered the rating on the revolver to CCC-minus from CCC and revised its recovery rating to 2 from 1, reflecting S&P's view that lenders should expect less recovery in the event of a payment default.
Should the automaker default or file for Chapter 11 bankruptcy protection, holders of its senior secured revolver should expect a 70 percent to 90 percent recovery of what they are owed instead of the previous expectation of 90 percent to 100 percent, S&P said.
"The lowering of the rating on the revolving credit facility reflects our view of persistently weaker demand for light vehicles in North America, as well as declining pools of assets securing the revolving credit facility," Maddock said in a statement.
GM is operating under emergency U.S. government loans and is seeking additional support. It has been told by the Obama administration's task force overseeing its bailout that it must cut deeper and faster to continue to receive aid.
The automaker must reach agreements to slash some $28 billion of unsecured debt and restructure funding of a trust for union retirees by June 1. The alternative raised by the task force could be a bankruptcy filing.
News reports have said GM may only offer bondholders a small equity stake in the company, with no cash or new debt. GM has declined to comment on the status of discussions with bondholders.
Maddock said GM, unlike Chrysler Holding LLC CCMLPD.UL, likely would survive bankruptcy.
S&P kept the GM's corporate credit rating at CC, reflecting S&P's view of the likelihood that GM will default — through either a bankruptcy or a distressed debt exchange.
The ratings agency also left its rating on GM's $1.5 billion senior secured term loan unchanged, at CCC, two notches above the corporate credit rating. It also left the recovery rating on that debt at 1, indicating that S&P believes those lenders can expect a 90 percent to 100 percent recovery in the event of a payment default. The rating on GM's unsecured debt remains at C, below the corporate credit rating.
"The corporate credit rating reflects our view of the prospects for a distressed debt exchange (which we would consider tantamount to a default under our criteria) or a bankruptcy filing," S&P said. The recovery rating on those bonds remains at 6, indicating S&P believes lenders can expect from no recovery to a 10 percent recovery in the event of a payment default.