Bloomberg News

GM Doesn't Need GMAC Stake Sale This Year, Chief Says (Update2)

March 01, 2006

General Motors Corp. has enough liquidity and doesn't need to complete a sale of a majority of its finance unit this year, Chief Executive Officer Rick Wagoner said.

``The liquidity position of the company is very strong,'' Wagoner said today when asked if GM could go into 2007 without a sale of a majority of its General Motors Acceptance Corp. finance unit. ``The auto company has massive liquidity, and the finance company has massive liquidity.'' GM has more than $19 billion in cash, not including GMAC cash balances.

GM, the world's largest automaker, has been searching since October for a buyer of 51 percent of GMAC to regain an investment-grade credit rating for the unit after the auto parent was cut to junk last year. Moody's Investors Service said last month the delay in a sale suggests ``difficulty'' in setting terms that would boost GMAC's credit quality.

Cerberus Capital Management LP and Citigroup Alternative Investments, a Citigroup Inc. buyout unit, made an offer Jan. 30 for part of GMAC, according to a person with direct knowledge of the matter. Wachovia Bank, the fourth-largest U.S. bank, dropped out of a competing bid with Kohlberg Kravis and Roberts & Co., people familiar with the talks said last month.

GMAC Chief Executive Eric Feldstein presented slides to analysts in January that demonstrated GM is considering alternative scenarios where GMAC would remain non-investment grade this year and would shrink the amount of loans on its books and have reduced earnings.

`Harder'

``It has been harder to do than they wished,'' Sean Egan, managing director of Egan-Jones Ratings Co. of Haverford, Pennsylvania, said in an interview today about the GMAC deal. ``We think they will end up doing a deal with a private equity firm, not a bank, for the simple reason that there will probably be significant losses that need to be reported by a buyer and a private equity buyer doesn't care about that.''

``It's a fairly complex situation,'' Wagoner said at the Geneva Motor Show. ``It's not just a question of realizing value from an asset, which is part of the deal, but the more interesting aspect is the business of that unit is very tightly involved with the business of the auto company.''

Prices of GMAC debt have erased most of an advance since October, when Wagoner first said a majority stake in the unit was for sale.

Bonds Fall

GMAC's 8 percent coupon bonds maturing in 2031, which closed as high as 107.25 cents on the dollar on Oct. 24, traded at 91 cents on the dollar today, down from 92.5 cents on the dollar yesterday, according to Trace, the bond-price reporting system of the NASD. The yield has risen to 8.9 percent from 7.4 percent in October and 8.7 percent yesterday. Yields move inversely to bond prices.

Any transaction would need to take account of the relationship between the automotive business and the financing operations, Wagoner said. Discussions are ``proceeding,'' he added, without providing details about possible buyers or a time for the sale.

GM's assets are structured so that maturity is shorter than the maturity of the company's liabilities, helping maintain a positive cash flow in the event the carmaker doesn't expand its business.

Fitch's Deadline

Fitch Ratings on Feb. 8 gave General Motors until March 31 to find a buyer before considering a cut in the unit's credit rating, reiterating a call it made a week earlier.

GMAC, which represents more than 80 percent of GM's unsecured debt and listed $142 billion in unsecured debt at the end of September, has been rated higher than its parent by Fitch and Standard & Poor's since October. Moody's, S&P and Fitch, the world's three biggest credit-rating companies, all said Feb. 3 that they're unlikely to give GM's finance unit an investment-grade rating unless it's partly owned by a bank.

GM has made more money from auto loans and mortgages than building cars and trucks since 2002. Last year, the company's auto business lost $9.7 billion and GMAC earned $2.8 billion.

The automaker's shares fell 40 cents to $19.91 at 4:04 p.m. in New York Stock Exchange composite trading, the lowest close since Jan. 17. The shares have risen 2.5 percent this year.

To contact the reporters on this story: Jeremy van Loon in Geneva at jvanloon@bloomberg.net; Jeff Green in Southfield, Michigan, at jgreen16@bloomberg.net;

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net.


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