UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549-1004
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) August 24, 2005
GENERAL MOTORS CORPORATION
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(Exact Name of Registrant as Specified in its Charter)
STATE OF DELAWARE 1-143 38-0572515
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(State or other jurisdiction of (Commission (I.R.S. Employer
Incorporation or Organization) File Number) Identification No.)
300 Renaissance Center, 48265-3000
Detroit, Michigan (Zip Code)
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(Address of Principal Executive Offices)
Registrant's telephone number, including area code (313) 556-5000
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Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
ITEM 8.01. OTHER EVENTS
On August 24, 2005, Moody's Investors Services, Inc. (Moody's) lowered their
ratings of General Motors Corporation (GM) its wholly-owned subsidiary General
Motors Acceptance Corporation (GMAC), and GMAC's wholly-owned subsidiary
Residential Capital Corporation (ResCap). Their press releases follows.
MOODY'S LOWERS GM'S RATINGS
Approximately $170 Billion of Debt Affected
New York, August 24, 2005 -- Moody's Investors Service lowered the ratings of
General Motors Corporation (GM) senior unsecured debt to Ba2 from Baa3, and its
short-term rating to Not Prime from Prime-3, and assigned a Ba2 Corporate Family
Rating and an SGL-1 speculative grade liquidity rating. Moody's also lowered the
ratings of General Motors Acceptance Corporation (GMAC) senior unsecured debt to
Ba1 from Baa2, and short-term rating to Not-Prime from Prime-2. The rating
outlook for both companies is negative.
The downgrades reflect continuing operating losses in GM's North American
automotive operations as well as challenges in restructuring the company to
achieve a viable long-term competitive position as a leading global automaker.
In Moody's view, a successful restructuring must address the company's high
fixed cost burden associated with hourly employee healthcare costs and excess
capacity, repositioning GM's product offerings in order to curtail the need for
large sales incentives, and additional actions needed to address the competitive
weakness of its US supply base, including Delphi Corporation.
Ratings lowered include:
General Motors Corporation and supported entities: senior unsecured debt to Ba2
form Baa3; shelf registration of senior unsecured debt to (P)Ba2 from (P)Baa3,
subordinated debt to (P)Ba3 from (P)Ba1, junior subordinated debt to (P)Ba3 from
(P)Ba1, and preferred to (P)B1 from (P)Ba2; VMIG-3 rating to S.G.; and,
short-term rating to Not-Prime from Prime-3.
General Motors Acceptance Corporation and supported entities: senior unsecured
debt to Ba1 from Baa2; senior unsecured shelf to (P)Ba1 from (P)Baa2; and
short-term rating to Not-Prime from Prime-3.
Ratings assigned:
General Motors Corporation: corporate family rating, Ba2; and speculative grade
liquidity rating, SGL-1.
Moody's estimates that GM's total automotive operating cash flow for 2005 will
be in the area of a negative $3 billon. A portion of this negative cash flow
relates to a reduction in trade payables in connection with the company's
decision to reduce excess inventories as well as unabsorbed fixed charges as
production was ramped down. This type of reduction should not recur during 2006.
GM is attempting to address the challenges it is facing through the
implementation of a North American recovery plan. This plan includes reducing
employment by more than 25,000 during the 2005 to 2008 period, and
reinvigoration of product offerings requiring increased reinvestment. The most
critical element of the recovery plan is GM's effort to negotiate significant
reductions in healthcare costs with the United Auto Workers union (UAW) as GM's
large retiree base places the company at a significant competitive cost
disadvantage relative to other auto manufacturers.
GM is also contending with the financial and operating difficulties of key
components suppliers, including Delphi Corporation. Risks to GM include cash
contributions and other economic considerations necessary to enable Delphi to
achieve a financial restructuring. Also GM might face operational disruption as
a result of a Delphi bankruptcy filing as well as the prospect of having to
provide pension and healthcare benefits to certain Delphi employees and retirees
under the terms of the agreement reached at the time of the Delphi spin-off.
The SGL-1 speculative grade liquidity rating reflects Moody's expectation that
GM's $20 billion cash and short-term VEBA position (June 30, 2005) will provide
adequate coverage of cash requirements during the next twelve months. These
include the possibility of the negative cash flow the company will likely
experience during the remainder of 2005 and early 2006, and approximately $1
billion in maturities of long-term and short-term debt.
The negative outlook reflects the potential for the rating to be further lowered
should GM fail to successfully implement its North American recovery plan --
including achieving healthcare cost relief with the UAW and reducing headcount.
GM's liquidity provides an important cushion as the company attempts to
restructure its operations. Any material erosion in GM's liquidity position
would make its rating more vulnerable to the pressures that continue to confront
its automotive operations.
The Ba2 rating anticipates that GM will: 1) maintain US market share of
approximately 25%; 2) achieve strong market acceptance and sustain healthy price
realization for new products including the T900 light truck and SUV series; 3)
earn automotive pretax profit in excess of $500 million for 2006; 4) generate at
least breakeven automotive operating cash flow before pension, VEBA, GMAC
dividends; and 5) maintain gross liquidity (cash and short-term VEBA balances)
at or above $20 billion. GMAC, through its continued support for the wholesale
and retail financing requirements of GM and through the dividend payment to its
parent ($1.5 billion during 2004), is also an important support element in
Moody's assessment of GM. The Ba2 rating for GM anticipates that during 2006
GM's metrics, including GMAC's dividend and using Moody's standard adjustments,
will approximate the following: EBITA margin exceeding 2%; interest coverage of
1.5 times, and free cash flow to debt in the mid-single digits range.
Factors that could stabilize GM's rating outlook include a return to sustained
profitability and free cash flow generation, particularly in its North American
operations. This requires successful implementation of its North American
recovery plan, including achieving meaningful healthcare cost relief from the
UAW. Moreover, the company will need to stem any further erosion of its
competitive market position through product enhancements that sustain market
share without the need for significant sales incentives.
Factors that could contribute to pressure on the Ba2 rating include: 1) US
market share falling below 25%; 2) reduced levels of dividends from GMAC; 3)
failing to maintain balance sheet liquidity of about $20 billion; and 4)
material negative variance from the credit metrics cited above.
Moody's is maintaining a one rating notch differential between the GMAC and GM
long-term ratings. In Moody's view, loss severity for GMAC's creditors would be
meaningfully lower than for GM's creditors were the two companies to default on
their debt obligations. We believe any potential for increasing the notching
distinction relates to widening the difference in probability of default between
the two firms. Changing ownership and governance structures could lead to
greater notching, though given the significant GM-related concentrations, the
potential is probably limited to one additional notch.
Moody's downgrade of GMAC's ratings reflects issues at the GM level that could
affect GMAC's condition and performance. For example, Moody's believes that the
potential for sustained demand weakness and high sales incentives for GM's autos
could ultimately lead to softer residual values, thereby negatively impacting
GMAC's credit loss and lease residual realization statistics. Also, though not
presently a concern, the quality of dealer finance receivables could be
compromised should sales deteriorate to lower levels, pressuring the financial
condition of the dealer base. However, in light of the mutual benefits GM and
GMAC derive from their association, measured in repeat sales and origination
volumes and profit distributions, we believe GM is committed to preserving
GMAC's strong franchise value. We therefore do not expect the company to vary
from its historical commitment to quality underwriting and risk management
practices.
A key intermediate term rating issue for GMAC is its liquidity management. GMAC
has demonstrated a forward-thinking approach to managing funding and liquidity
challenges, but this task has become more difficult as access to the unsecured
markets has declined, leaving fewer financing alternatives for GMAC's
less-liquid assets. Funding constraints may define the scale and scope of GMAC's
operations should alternative funding sources not become more readily available.
Given these issues, maintaining flexibility via an adequate capital cushion is
of high importance in Moody's view; deviation from the current trend of
moderating leverage would reflect negatively on GMAC's intrinsic credit profile.
Results in GMAC's core auto finance operations are under pressure due to a
shrinking asset base and higher borrowing costs. But strong cash flow from
portfolio runoff and sizeable cash balances should mitigate near term liquidity
pressures, affording the company some time to address funding challenges. GMAC's
mortgage and insurance units have performed admirably, though dwindling
refinance volumes associated with stabilizing mortgage rates could result in a
reversal of earnings momentum. Cost management will be a key to sustaining
profitability metrics as the company deals with the consequences of moderating
earning asset levels and higher cost of funds.
General Motors Corporation, headquartered in Detroit, Michigan, is the world's
largest producer of cars and light trucks. GMAC, a wholly-owned subsidiary of
GM, provides retail and wholesale financing in support of GM's automotive
operations and is one of the worlds largest non-bank financial institutions.
MOODY'S DOWNGRADES RESIDENTIAL CAPITAL'S SENIOR DEBT TO Baa3; RATING OUTLOOK IS
NEGATIVE
Approximately $5 Billion in Securities Affected.
New York, August 24, 2005 -- Moody's Investors Service downgraded to Baa3, from
Baa2, the long-term debt rating, and to Prime-3, from Prime-2, the short-term
debt rating, of Residential Capital Corporation (ResCap). The rating outlook is
negative. According to the rating agency, these rating actions reflect the
residential real estate finance firm's ownership by, and remaining financial
connections with, its 100% parent, GMAC, which provides, via intercompany loans,
a substantial amount of its unsecured debt. Moody's believes that these factors
link the two firms' ratings, and currently place a cap on ResCap's rating.
(GMAC's senior debt rating is Ba1, negative outlook).
The rating downgrade of ResCap is not a result of any change in Moody's views
regarding ResCap's intrinsic creditworthiness, which the rating agency deems to
be "high Baa" on a stand-alone basis, but rather reflect the ratings of its
parent, GMAC, and ultimate parent, GM. Although the residential real estate
finance business of ResCap, and auto finance business of GMAC, are separate from
an operating perspective, ResCap continues to be substantially dependent on the
support of GMAC in regards to its capital structure, though such support should
continue to diminish. ResCap is also a wholly owned subsidiary of GMAC. Moody's
will continue to monitor ResCap's independent funding initiative as it strives
to eliminate its unsecured debt funding from GMAC, and the evolution of a longer
track record of consolidated success as a stand-alone firm. ResCap's stated
plans to refinance all of its intercompany loans from GMAC reasonably soon, and
Moody's confidence that ResCap can and will do so, combined with progress
already made, provide Moody's with sufficient grounds to establish a single
rating notch differential for ResCap vis-a-vis GMAC. The negative rating outlook
on ResCap reflects the negative rating outlook of GMAC, and the progress that
ResCap has yet to make in its refinancing of intercompany debt. A stable rating
outlook for ResCap would reflect both a stable rating outlook for GMAC, and
success in eliminating the real estate finance firm's intercompany borrowings.
Moody's Baa3 senior debt rating reflects ResCap's firm position among the top
ten mortgage firms in the USA, a position Moody's expects will be maintained, if
not enhanced. The rating also reflects ResCap's sound asset quality and limited
exposure to mortgage servicing rights (MSRs) and good financial sophistication
and controls. The firm's operational performance has been sound, with diverse
sources of revenue and operating income, a record the rating agency expects will
also be at least maintained. While Moody's is optimistic that ResCap's
independent funding and one-firm risk management and control systems will fare
well, these initiatives are yet in their early stages, and ResCap needs to
demonstrate a longer track record of consolidated success as a stand-alone firm.
Moody's also notes that major competitors have stronger leadership positions and
are more diversified and better capitalized. To date, Moody's believes the risk
control track record of the firm's operating units has been good. ResCap's
ownership by GMAC is also an important rating factor.
Moody's Prime-3 rating on ResCap's 364-day revolving credit facility recognizes
that ResCap funds its mortgage origination activities with short-term and mostly
secured borrowing facilities. ResCap's inventories of conventional and
government-related mortgages enjoy a deep financing market, and tend to be held
in production pipelines for short holding periods; these are positive factors
for ResCap's liquidity and funding capacity. ResCap has various types of secured
debt structures, with appropriate levels of collateral, that provide funding
support for its conforming, and diverse other, mortgage assets. Moody's believes
that these facilities, collateral and supporting management systems provide
adequate liquidity support. ResCap continues to enjoy strong access to the
securitization market, and is a leader in non-agency securitizations.
Factors that would result in an upgrade for ResCap's stand-alone
creditworthiness include a better-developed track record of operating
independently of GMAC as it relates to financial and capital management, as well
as operations and risk controls. In addition, assuming that the balance sheet
and business mix complexion do not change, a material build-up in common equity
and long-term debt resulting in much decreased reliance on short-term debt for
funding will be required for an upgrade of its stand-alone creditworthiness. The
common equity component should increase around 50% above current levels, while
long-term debt should increase even more substantially in order to more fully
stabilize the firm's funding structure and support its liquidity. These leverage
and funding-risk issues are key for an improvement in ResCap's stand-alone
creditworthiness. A strengthening of market share in mortgage origination and
servicing, and a deepening in franchise in ResCap's newer, often smaller
businesses, would also be a distinct plus. ResCap's rating continues to be
linked to that of its parent, GMAC, even if all intercompany borrowing
arrangements are severed. An action regarding GMAC's ratings could likely result
in a similar action with ResCap's ratings. Two consecutive quarterly operating
losses, any deterioration in capital or increase in risk-adjusted leverage, or a
tumble in market share to below the top ten US residential mortgage originators
and servicers would likely cause a diminution of ResCap's stand-alone
creditworthiness, and perhaps its rating. A material shift towards higher risk
products would also negatively affect ResCap.
The following ratings were downgraded, with a negative outlook:
Residential Capital Corporation -- $750 million 364-day guaranteed revolving
credit facility to Prime-3, from Prime-2
Residential Capital Corporation -- $1 billion floating-rate notes due 2007, $2.5
billion notes due 2010, and $500 million notes due 2015, to Baa3, from Baa2
Moody's last rating action on ResCap took place on July 7, 2005, when the
ratings were placed under review.
Residential Capital Corporation is a real estate finance company based in
Minneapolis, Minnesota, USA. It is a leading originator of residential mortgages
in the USA and has mortgage banking operations in Europe, Mexico and Canada as
well. At 30 June, 2005, ResCap reported $7.1 billion in book equity and $99
billion in book assets. It is a wholly owned subsidiary of General Motors
Acceptance Corporation (GMAC), in turn a subsidiary of General Motors
Corporation [NYSE: GM].
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
GENERAL MOTORS CORPORATION
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(Registrant)
Date: August 25, 2005 By: /s/PETER R. BIBLE
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(Peter R. Bible,
Chief Accounting Officer)