Moody's Investor Service, March 9, 2014 announcement: "Moody's: GM's share repurchase plan is negative credit development; Baa3 credit facility rating and stable outlook unchanged."

Source: Moody's Investor Service, March 9, 2014 announcement

Announcement: Moody's: GM's share repurchase plan is negative credit development; Baa3 credit facility rating and stable outlook unchanged.

Global Credit Research - 09 Mar 2015

Approximately $5 billion of debt affected

New York, March 09, 2015 -- Moody's Investors Service said that General Motors Company's (GM) ratings (including its Baa3 credit facility rating which contingently benefits from domestic subsidiary guarantees and its Ba1 senior unsecured note rating) are unchanged following the company's announcement that its board approved a new capital allocation strategy. This strategy will include: a $5 billion share repurchase program to be completed by the end of 2016, a dividend policy that should amount to $5 billion for 2015 through 2016, and a $20 billion targeted cash position. The rating outlook remains stable. Also unchanged are the Ba1 senior unsecured rating and stable outlook of GM Financial which benefit from a support agreement from GM.

Although GM's ratings and stable outlook are unchanged by the capital allocation program, the initiative represents a negative credit development. Bruce Clark, Senior Vice President with Moody's said, "This program weakens GM's positioning at the current rating level and will likely delay any potential consideration for an upgrade." Higher ratings are important to GM because of the significant ongoing borrowing requirements of its captive finance operation -- GM Financial.

The key credit risk associated with the capital allocation plan is GM's decision to effectively fund its share repurchase program by reducing the liquidity position of its automotive operations by about $5 billion in the face of a number of operational and financial challenges. Moreover, despite GM's stated intention of maintaining an "investment-grade balance sheet", the reduction of its targeted cash position to $20 billion from a previous targeted range of $20 billion to $25 billion, combined with the plan to return all available free cash flow to shareholders, represent a clear increase in the company's credit risk profile.

Before the impact of any recall-related and other one-time items, GM's credit metrics for 2014 and those we anticipate for 2015 are broadly consistent with the company's current rating levels. However, the 2014 metrics were severely stressed by the recall-related and one-time items, and we expect that 2015 metrics will also remain weakened as these expenses and expenditures continue to be incurred. Moody's Clark noted that, "GM is committing itself to a large shareholder reward initiative when its metrics are being pressured by the recall. It's going to take some time to re-establish the operating and financial cushion that might support any improvement in the rating."

GM's gross automotive liquidity will fall from about $33 billion ($25 billion in cash and $8 billion in automotive credit facilities) to $28 billion ($20 billion in cash and $8 billion in credit facilities). This decline in liquidity will occur as GM contends with weak automotive markets in Latin America, Russia and many markets in South East Asia. In addition, during 2015 the company will face another year of sizable losses in Europe and by 2016 it will begin to approach only breakeven performance in the region. Finally, the US auto industry's current UAW contract expires during September 2015, and GM will have to contend with negotiating a new contract with the union after committing to make significantly larger distributions to shareholders.

Beyond these operational challenges, GM will have to fund a number of items during 2015 and possibly 2016. These items include: approximately $1.2 billion in continued recall-related expenditures; payments related to its $400 million ignition switch victim compensation program; litigation costs that might arise from plaintiffs who opt out of the GM compensation program; and, the possibility of significant fines and penalties that might be imposed by the US government due to the faulty ignition switches.

GM will also have to contend with the highly cyclical nature of the auto industry and its vulnerability to unexpected shocks. One of the fundamental ways of contending with the risks in this industry is to have a robust liquidity profile. The liquidity position that GM has chosen to run with as a result of this new shareholder distribution plan remains adequate, but will be notably less robust than it would have otherwise been.

GM's formidable position in North America enabled the company's overall automotive operations to generate the following metrics during 2014 (before recall-related and other one-time costs, but including Moody's standard adjustments): EBITA margin of 4.6%; debt/EBITDA of 3.0x; and EBITA/interest of 4.0x. These metric levels are consistent with the company's current ratings. However, a recognition of the recall-related and other one-time items results in much weaker metric levels: EBIT margin of 1.5%; debt/EBITDA of 4.8x; and EBITA/interest of 1.3x.

GM's stable outlook is supported by the its strength in North America and China , the gradual progress the company is making in stemming losses in Europe, and by a liquidity position that, although reduced, will still be adequate to contend with the volatility in the auto sector and the company-specific risks facing the company. However, Moody's does not expect metrics to strengthen to levels that might support a higher rating until sometime during 2016. Metrics that could contribute to a positive rating action include: EBITA margin above 7.5%; debt/EBITDA remaining below 3x; and EBITA/interest above 5.5x.

The most likely source of pressure on the rating would result from a decision to maintain a cash position lower than the $20 billion level contemplated under the proposed capital allocation plan or to increase debt in order to fund share repurchases. The rating would come under pressure if the company's 2016 metric levels were on track to approximate the following levels: EBITA margin remaining below 5%; debt/EBITDA of exceeding 3.5x; and EBITA/interest below 3.5x.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Jesse B Clark
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Robert P Jankowitz
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. ("MIS") AND ITS AFFILIATES ARE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND CREDIT RATINGS AND RESEARCH PUBLICATIONS PUBLISHED BY MOODY'S ("MOODY'S PUBLICATION") MAY INCLUDE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MOODY'S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL, FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND MOODY'S OPINIONS INCLUDED IN MOODY'S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY'S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY'S ANALYTICS, INC. CREDIT RATINGS AND MOODY'S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND MOODY'S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. NEITHER CREDIT RATINGS NOR MOODY'S PUBLICATIONS COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY'S ISSUES ITS CREDIT RATINGS AND PUBLISHES MOODY'S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

MOODY'S CREDIT RATINGS AND MOODY'S PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS FOR RETAIL INVESTORS TO CONSIDER MOODY'S CREDIT RATINGS OR MOODY'S PUBLICATIONS IN MAKING ANY INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER.

ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY'S PRIOR WRITTEN CONSENT.

All information contained herein is obtained by MOODY'S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided "AS IS" without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY'S is not an auditor and cannot in every instance independently verify or validate information received in the rating process or in preparing the Moody’s Publications.

To the extent permitted by law, MOODY'S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY'S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY’S.

To the extent permitted by law, MOODY'S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY'S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information.

NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY'S IN ANY FORM OR MANNER WHATSOEVER.

MIS, a wholly-owned credit rating agency subsidiary of Moody’s Corporation ("MCO"), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MIS have, prior to assignment of any rating, agreed to pay to MIS for appraisal and rating services rendered by it fees ranging from $1,500 to approximately $2,500,000. MCO and MIS also maintain policies and procedures to address the independence of MIS's ratings and rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading "Shareholder Relations — Corporate Governance — Director and Shareholder Affiliation Policy."

For Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY'S affiliate, Moody's Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody's Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to "wholesale clients" within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY'S that you are, or are accessing the document as a representative of, a "wholesale client" and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to "retail clients" within the meaning of section 761G of the Corporations Act 2001. MOODY'S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail clients. It would be dangerous for "retail clients" to make any investment decision based on MOODY'S credit rating. If in doubt you should contact your financial or other professional adviser.