General Motors Co.'s Recovery Rating Profile
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October 12, 2011
Recovery Report:
General Motors Co.’s Recovery
Rating Profile
Primary Credit Analyst:
Robert Schulz, CFA, New York (1) 212-438-7808; robert_schulz@standardandpoors.com
Recovery Analyst:
Gregory Maddock, New York (1) 212-438-7205; greg_maddock@standardandpoors.com
Table Of Contents
Overview
Legal And Structural Considerations
Issuer Credit Rating Rationale
Recovery Analysis
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899147 | 300374394Recovery Report:
General Motors Co.’s Recovery Rating Profile
Overview
• We are raising our issue-level rating on General Motors Holdings LLC's (GM Holdings) senior secured revolving
credit facility maturing in 2015. GM Holdings is a wholly owned subsidiary of U.S. auto manufacturer General
Motors Co. (GM).
• GM's financial profile reflects modest funded debt but significant pension liabilities.
• Standard & Poor's Ratings Services' simulated default scenario contemplates a default occurring in 2015, with a
continued weak U.S. economy leading to a recession that deepens in 2014--along with economic weakness in
much of Western Europe, South America, and China.
Table 1
General Motors Co.--Credit Profile
Corporate credit rating as of Sept.
30, 2011 BB+/Stable/--
Estimated gross enterprise value at $18,928 mil.
default
Simulated year of default 2015
Outstanding principal at default Issue Expected recovery
Facility/issue (mil. $) rating Recovery rating (%) Maturity
Secured debt
US$5 bil. ABL revolving credit facility 5,000 BBB 1 90-100 2015
Domestic subsidiary financing 400 NR NR N/A Various
International secured facilities 1,500 NR NR N/A Various
Unsecured debt
International unsecured facilities 2,000 NR NR N/A Various
NR--Not rated. N/A--Not applicable.
(For Standard & Poor's recovery rating methodology, see "Criteria Guidelines For Recovery Ratings…," published
Aug. 10, 2009, on RatingsDirect on the Global Credit Portal.)
Legal And Structural Considerations
GM is a U.S.-domiciled automaker with manufacturing subsidiaries and joint ventures worldwide.
The company is the successor to General Motors Corp. (GMC), which, along with three domestic subsidiaries, filed
for bankruptcy protection on June 1, 2009. The new company was formed at the direction of the U.S. Treasury. On
July 10, 2009, it acquired substantially all of the assets of GMC and assumed certain GMC liabilities (primarily
pensions) using the section 363 sale provision of the Bankruptcy Act.
Capital structure
GM's capital structure is substantially unleveraged, and its principal liability is unfunded pensions. The company
has several smaller facilities available to its international subsidiaries and joint ventures. The revolving credit facility
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899147 | 300374394Recovery Report: General Motors Co.’s Recovery Rating Profile
provides liquidity for working capital.
The revolving credit facility permits additional senior secured first-lien debt, provided the borrowing base coverage
ratio is at least 1.2:1.0 after incurrence. Additionally, second-lien debt is generally permitted, but second-lien debt
maturing prior to the revolving credit facility is limited to $3 billion (excluding amounts that could be borrowed
pursuant to the Energy Independence and Security Act of 2007). We assumed no additional loan amounts in this
analysis.
The facility also permits up to $2 billion in non-loan exposure--including hedging, letters of credit, and
cash-management exposure--to be secured on a first-lien basis, provided the borrowing base coverage ratio is at least
1.0:1.0 after incurrence. Our default scenario assumes that there are $300 million of such claims at default.
Security and guarantee package
The senior secured revolving credit facility is secured by the assets of material domestic subsidiaries (excluding cash
and finance subsidiaries), the stock of most domestic subsidiaries, intercompany notes, and 65% of the stock of
most first-tier foreign subsidiaries. GM's significant interest in foreign joint ventures is not pledged. GM and all
material domestic subsidiaries guarantee the facility.
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899147 | 300374394Recovery Report: General Motors Co.’s Recovery Rating Profile
Documentation/covenants
Revolving credit facility availability is subject to compliance with a borrowing base. The borrowing base formula
includes certain tangible assets at customary advance rates and limits eligible technology and trademarks to the
lesser of $3.75 billion or 25% of the borrowing base, subject to a floor of $2 billion. In addition, liquidity (including
revolving credit availability) must exceed $2 billion domestically and $4 billion globally.
Jurisdictional/insolvency regime issues
Although GM operates globally, its $5 billion revolving credit facility is issued in the U.S. As a result, if the company
were to file for bankruptcy protection, we would expect the parent and domestic manufacturing subsidiaries to file
in the U.S. and foreign subsidiaries to remain outside of the reorganization process, as was the case previously.
Issuer Credit Rating Rationale
See Standard & Poor's research update on General Motors Co., Sept. 29, 2011.
Recovery Analysis
Table 2
General Motors Co.--Stressed Valuation
--Simulated default assumptions-- --Simplified waterfall--
Year of default 2015 Gross enterprise value at default $18,928 mil.
Last 12 months 2011 EBITDA $13,195 mil. Administrative expenses $1,704 mil.
EBITDA decline at default 64% Net enterprise value at default $17,225 mil.
EBITDA at default $4,732 mil. Priority claims $687 mil.
Implied enterprise value/EBITDA multiple 4.0x Net enterprise value available to creditors $16,538 mil.
LIBOR/margin rise 200 basis points
ABL facility debt $5,188 mil.
Recovery expectation 90%-100%
Secured first-lien debt $1,967 mil.
Recovery expectation N/A
Unsecured notes $2,070 mil.
Recovery expectation N/A
Note: All debt amounts include six months of prepetition interest. N/A--Not applicable.
Simulated default scenario
Our simulated default scenario contemplates a default occurring in 2015, stemming from a continued weak U.S.
economy marked by low consumer confidence, declining discretionary income, and tightening credit markets--all
leading to a recession that deepens in 2014--coinciding with economic weakness throughout much of Western
Europe and, to a lesser extent, South America and China.
Under our default scenario assumptions, GM would be unable to replace the profitability associated with light
trucks and full-size pickups, despite substantial product-mix adjustments. In addition, the company would be unable
to sufficiently reduce production costs for smaller cars, which would further constrain its profitability. We believe
that GM might restructure its obligations in bankruptcy while its cash balances remain substantially higher than the
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$4 billion global minimum cash and liquidity requirement in its secured credit agreement. However, we did not
include excess cash in our valuation, because we believe that the company would use such cash during the
restructuring process following bankruptcy.
We have also assumed the following:
• LIBOR increases by 200 basis points (bps), to 250 bps;
• EBITDA declines 64% from the latest 12 months ended June 30, 2011, to $4.7 billion;
• The revolving credit facility is assumed to be extended in 2013 or 2014, and that facility and various local
facilities would be fully drawn at default; and
• There are no additional first- or second-lien debt amounts.
Valuation
We believe that if GM were to default, its business model would remain viable, given its global footprint, its
extensive manufacturing and engineering resources, and the need (albeit reduced) for vehicles. As a result, we believe
that lenders would achieve greater recovery value through a reorganization rather than through a liquidation of the
company.
In arriving at an enterprise valuation, we used a 4x multiple of EBITDA at default. We did not assign any value to
the EBITDA or net worth of financial subsidiaries and affiliates, nor did we include any of their debt obligations in
calculating the insolvency proxy. The valuation multiple of 4x reflects the cyclical nature of automotive
manufacturing, the high and continuing capital investment required, and the low adjusted EBITDA margins
achieved even in very profitable times after considering capital expenditures. The company's gross enterprise value
at default in our simulation is $18.9 billion.
Other assumptions include:
• The EBITDA contribution at default will be 60% for domestic operations, 15% for pledged foreign operations,
and 25% for other unpledged operations.
• Local foreign debt plus accrued interest expense will total $5.1 billion at default. This debt would be treated as a
priority claim on the enterprise value at subsidiaries that have local debt.
• Priority claims will total $687 million (primarily from capitalized leases we assumed would be affirmed).
• There will be $300 million in cash-management and hedging claims that would be considered a first-lien
obligation.
• We estimate about $3.1 billion in nondebt unsecured claims (which consist primarily of rejected operating leases
and unfunded other postretirement employee benefits for domestic non-United Auto Workers personnel).
• We estimate administrative expenses of 9% of the gross enterprise value.
Outcome
Our estimate of net enterprise value at default is $17.2 billion. However, the value available to senior secured
lenders would be $9.1 billion. The $9.1 billion reflects reductions to net enterprise value for local priority claims
and the unpledged value of foreign subsidiaries. We estimate senior secured revolving credit facility claims at default
of $5.2 billion (the revolving credit facility outstanding plus six months of accrued interest) and other first-lien
claims of $712 million (including six months of accrued interest and $300 million in cash-management claims). As a
result, we believe that senior secured lenders could expect very high (90% to 100%) recovery in the event of a
default.
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