Traverse City Record-Eagle

Business

November 6, 2012

GM's new credit lines total $11B

DETROIT (AP) — General Motors is boosting its cash with $11 billion in new credit lines, a move that could mean the automaker is preparing to buy back its shares from the government.

The company said Monday it acquired the credit from 35 financial institutions in 14 countries. It now has more than $42 billion in available cash and credit.

GM wouldn't say specifically what it plans to do with the money, only that it's a source of "backup liquidity" that may be used for "strategic initiatives."

But industry analysts said GM could be hoarding the cash to buy back stock, specifically from the U.S. government. The U.S. Treasury Department owns 26.5 percent of General Motors Co. It received the sake in exchange for a $49.5 billion bailout about four years ago.

In a note to investors, Barclays analyst Brian Johnson suggested GM should use the bulk of its cash to gradually buy back its shares.

"We, and other investors, would view a share buyback as the best use of cash in the near-term," he wrote.

Analysts said GM could also use the cash to pay for a restructuring of GM's troubled European operations, buy Ally Financial's European auto finance division or further fund its pension plans. Government-controlled Ally is GM's former financing arm.

GM says the new lines have more favorable terms than its old one and will allow it to borrow in different currencies.

Two of the three New York debt-rating agencies, Moody Investors Service and Standard & Poor's, quickly gave the GM credit lines an investment-grade rating on Monday.

But that doesn't mean GM's overall corporate credit rating changed from junk status. S&P's corporate rating on GM remains at "BB+," the highest junk rating. Moody's kept the corporate rating at "Ba1," also one notch below investment grade. Moody's has given GM a positive outlook and said it remains on track to return to investment grade within the next year.

GM's new lines of credit include a three-year $5.5 billion facility and a five-year $5.5 billion line. They replace GM's existing $5 billion credit line, which was to expire in 2015. GM also has $31.6 billion in cash and securities.

Chief Financial Officer Dan Ammann said the lines are a vote of confidence in the company's financial strength.

The automaker, known derisively as "Government Motors" for taking bailout money to avoid going under in 2008 and 2009, has long wanted the government to sell its stake and exit the business. But the government, which still owns 500 million GM shares, is waiting for the stock price to rise before making a move. The government is $27 billion in the hole on its investment, and to break even, GM shares would have to sell for $53.

At this point, they're not even close. Shares fell 22 cents to close at $25.57 Monday.

It would cost GM nearly $12.8 billion to buy back all of the government's shares at the current price.

Last week, GM announced a $1.48 billion third-quarter profit on strong North American earnings, big improvements in South America and strong earnings in international areas outside of China.

But there are signs of weakness. Profit in North America, GM's most lucrative market, fell 17 percent from July through September. The company's market share in the U.S. dropped more than two percentage points to 17.6 percent, and its U.S. sales increase of 3.4 percent for the year lags overall market growth of 14.5 percent. In Europe, where it hasn't made money in a dozen years, GM lost $478 million before taxes.

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