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GM Adds Collateral to Bank Loans

The deal, however, comes at the expense of the auto giant's bond investors.
Stephen Taub, CFO.com | US
June 20, 2006

Financially strapped General Motors announced that it will put up additional collateral to extend its existing $5.6 billion unsecured revolving credit facility to 2011. It had been scheduled to expire in 2008.

Under the proposed terms, existing lenders will receive a 20 percent reduction in their commitments and have the opportunity to extend to 2011 in return for collateral, pricing, and other structural enhancements, according to a company statement.

The deal, however, comes at the expense of the auto giant's bond investors. In response, Standard & Poor's and Moody's cut GM's senior unsecured debt rating even deeper into junk territory. "The downgrade of the unsecured debt reflects the diminution in the asset coverage that would be available to this class of creditors as a result of the granting of security to certain bank lenders," stated Moody's.

The amendment to the credit facility must be approved by lenders with greater than 50 percent of the loan commitment under the existing facility; according to GM, it has received formal indications that the majority of its lending bank syndicate have agreed to the amendment. Lenders that do not consent, added the company, will maintain their commitment in the unsecured facility through 2008 under the current terms.

In a press release, GM asserted that the proposed amendment will remove any uncertainty as to whether the bank syndicate will be required to honor a borrowing request.

"GM values its long-standing relationships with its banks and believes that these proposed changes to the facility will be beneficial for all parties," said treasurer Walter Borst, in a statement. "The amended facility will further strengthen GM's strong liquidity profile and will reposition this source of capital from a standby facility to one that will be drawn on from time to time to fund working capital and other needs."

GM added that it expects the amendment and extension of the existing credit facility will be completed by the end of July.




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