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GM to Draw Down $3.5 Billion In Credit Facility to Boost Liquidity
http://online.wsj.com/article/SB122186953006359023.html?mod=yahoo_hs&ru=yahoo
General Motors Corp. said it intends to draw down the remaining $3.5 billion of an existing $4.5 billion secured revolving credit facility to boost its liquidity amid uncertainty in the capital markets.
The move reflects increasing concern at GM about the effect closed credit markets are having on the company's cash cushion. GM's liquidity has been drained by falling sales in the U.S. and a litany of restructuring charges recorded in recent years.
The $4.5 billion secured revolving credit facility was put in place in July 2006 with a consortium of banks and provides liquidity that GM can draw on from time to time to fund working capital and other needs. Earlier this year, GM drew down about $1 billion from the line of credit, but it has in the past has avoided relying heavily on its credit lines as it typically enjoyed a relatively solid liquidity position.
In fact, GM executives said as recently as June that drawing down from the credit line may send a negative sign to investors.
GM also said Friday it completed a $322 million debt-to-equity exchange. The auto maker issued 28.3 million new shares of its common stock in exchange for $322 million principal amount of its 1.5% Series D Senior Convertible Debentures, which mature in June.
"Accessing the funds available to us is a prudent liquidity measure," GM Treasurer Walter Borst said in a statement. "Drawing on the revolver now improves our liquidity position at a time when the capital markets have become more challenging."
GM shares rose $3.15, or 31%, to $13.08 in 4 p.m. trading on the New York Stock Exchange. GM shares have rallied on wider optimism on Wall Street and hopes that the auto maker will receive billions in direct loans from the U.S. government.
In July, GM unveiled a $15 billion fundraising plan designed to keep the company afloat through the end of 2009. About $10 billion of that would be achieved through cost cuts, such as a dividend cut and capital expenditures reductions, while another $5 billion would be raised through asset sales and secured financing deals.
But GM, like many companies, has had difficulty tapping the credit markets this year. The auto industry has been particularly pressured as U.S. auto sales are currently at a 15-year low, and the profitable truck and SUV segments have collapsed under the weight of high gasoline prices.
As GM in recent months has sought new financing, it has found the costs of the loans to be prohibitive. It currently is lobbying Washington to approve funding for $25 billion in direct loans. Without those loans or a loosening of the credit markets, many analysts and investors fear that GM will run into a cash crunch that could lead to an inability to meet its day-to-day funding needs.
A tough economy and falling market share have led GM to post a string of financial losses and spend billions on a restructuring of its North American operations and assisting Delphi Corp. -- its top parts supplier -- through a three-year bankruptcy process. GM has recently been burning $1 billion in cash on a monthly basis, and had $20.5 billion in cash at the end of the second quarter.
Its credit lines were not counted in the $20.5 billion number.
More at Link
http://online.wsj.com/article/SB122186953006359023.html?mod=yahoo_hs&ru=yahoo
General Motors Corp. said it intends to draw down the remaining $3.5 billion of an existing $4.5 billion secured revolving credit facility to boost its liquidity amid uncertainty in the capital markets.
The move reflects increasing concern at GM about the effect closed credit markets are having on the company's cash cushion. GM's liquidity has been drained by falling sales in the U.S. and a litany of restructuring charges recorded in recent years.
The $4.5 billion secured revolving credit facility was put in place in July 2006 with a consortium of banks and provides liquidity that GM can draw on from time to time to fund working capital and other needs. Earlier this year, GM drew down about $1 billion from the line of credit, but it has in the past has avoided relying heavily on its credit lines as it typically enjoyed a relatively solid liquidity position.
In fact, GM executives said as recently as June that drawing down from the credit line may send a negative sign to investors.
GM also said Friday it completed a $322 million debt-to-equity exchange. The auto maker issued 28.3 million new shares of its common stock in exchange for $322 million principal amount of its 1.5% Series D Senior Convertible Debentures, which mature in June.
"Accessing the funds available to us is a prudent liquidity measure," GM Treasurer Walter Borst said in a statement. "Drawing on the revolver now improves our liquidity position at a time when the capital markets have become more challenging."
GM shares rose $3.15, or 31%, to $13.08 in 4 p.m. trading on the New York Stock Exchange. GM shares have rallied on wider optimism on Wall Street and hopes that the auto maker will receive billions in direct loans from the U.S. government.
In July, GM unveiled a $15 billion fundraising plan designed to keep the company afloat through the end of 2009. About $10 billion of that would be achieved through cost cuts, such as a dividend cut and capital expenditures reductions, while another $5 billion would be raised through asset sales and secured financing deals.
But GM, like many companies, has had difficulty tapping the credit markets this year. The auto industry has been particularly pressured as U.S. auto sales are currently at a 15-year low, and the profitable truck and SUV segments have collapsed under the weight of high gasoline prices.
As GM in recent months has sought new financing, it has found the costs of the loans to be prohibitive. It currently is lobbying Washington to approve funding for $25 billion in direct loans. Without those loans or a loosening of the credit markets, many analysts and investors fear that GM will run into a cash crunch that could lead to an inability to meet its day-to-day funding needs.
A tough economy and falling market share have led GM to post a string of financial losses and spend billions on a restructuring of its North American operations and assisting Delphi Corp. -- its top parts supplier -- through a three-year bankruptcy process. GM has recently been burning $1 billion in cash on a monthly basis, and had $20.5 billion in cash at the end of the second quarter.
Its credit lines were not counted in the $20.5 billion number.
More at Link
