General Motors, if it wants to remain liquid, appears to be in need of debt funding.(Reuters) - General Motors Corp (GM.N: Quote, Profile, Research)
needs to raise about $9 billion over the next two years to refinance
debt, and may seek more for operational cash burn as it faces
production headwinds and commodity price increases, Lehman Brothers
analyst Brian Johnson said.
GM will need to refinance close to $8.7 billion of debt due between
now and January 2010, as well as absorb additional cash burn of close
to $11 billion, Johnson said.
"When we last looked in depth at the GM liquidity position in March,
GM credit spreads had spiked close to their widest levels of late 2005
and about 1000 basis points wider than their lowest point in 2007," he
said in a note to clients.
Johnson said as the overall high yield market improved, GM spreads
tightened about 300 basis points while rival Ford Motor Co (F.N: Quote, Profile, Research) spreads tightened more than 400 basis points, indicating greater relative comfort with Ford's liquidity position.
Last week, Fitch Ratings said both GM and Ford will continue to face
heavy cash drains in 2008 and are likely to burn cash through 2009
unless industry sales rebound.
GM will likely see its liquidity eroded due to operating losses in
the North American market and restructuring costs, Fitch said, adding
that the company faces the risk of another ratings downgrade this year.
GM, which lost a combined $51 billion over the past three years,
acknowledged at its annual Banker meeting that it would likely need to
seek additional liquidity if selling conditions do not materially
rebound in the second half of 2008, Lehman's Johnson said.
The company also said many of the steps it was taking to reduce
risks related to its Residential Capital LLC mortgage unit as well as
to auto-parts suppliers Delphi Corp DPHIQ.PK and America Axle &
Manufacturing (AXL.N: Quote, Profile, Research)
will result in a cash outflow of $1.7 billion this year, Johnson, who
maintained his "equal weight" rating and $24 price target on the stock,
added.
Shares of the company closed at $20.20 Tuesday on the New York Stock Exchange.
(Reporting by Tenzin Pema in Bangalore; Editing by Pratish Narayanan)
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