Wild Ass Rumor of the Day: Banks Refuse to Renew GM's Credit Line
GM's spinning the fact that they're not renewing their $4.1b standby credit because they don't need it. Speaking to CNNMoney, GM spokeswoman Melisa Tezanos claimed GM never borrowed under the agreement and "a review of its capital needs for the first half of the year showed the auto maker had enough liquidity and flexibility with the standby credit pact." Texanos also said that the fact that the credit line was collateralized by GMAC "was not a factor" in GM's decision to terminate the credit revolver. We call bullshit. Our spy reports that the banks won't lend on the line since the GMAC security interest is worth less than the line, thanks to the strong potential of bankruptcy at GMAC/Cerberus-owned mortage lender Residential Capital. "Obviously, it's not good to admit you can't renew your line. Better to tell the story you don't need it now." But, they do. Although the automaker hasn't drawn upon the line of credit, it still relies on it as a backstop for certain financial transactions. Oh, and if RESCAP goes belly-up, how do you think that will affect GM's auto loans? This could get really nasty really quickly…
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It seems like it would have been prudent to keep the line available, since it's not getting any easier to borrow money nowadays. Just ask Chrysler's bankers.
Lichtronamo: LOL, good line.
I don't understand them closing this at all - having $4B readily available outside of using cash is a very important asset. From reading I'd bet the banks wanted to increase the fees associated with keeping this LOC open due to funding concerns (interest rates / fees go up with risk) - only way to know is to see the lending agreement and clauses on fee escalation. GM closed it to save some money which means they can't afford to pay a fee.
hltgy: Even the employees are catching on - a relative is a GM retiree. He just figured out he can buy a 1-2 year old Envoy with low miles for about 1/2 the cost of a new one (even with the +/- 10% GMS discount price)