GM Running On Fumes
Bloomberg reports that General Motors has tapped the remaining $3.5b of a $4.5b revolving credit line. (Needless to say, the bad news arrived on a Friday– the by-now usual pattern for the embattled automaker.) In an official statement, GM said the cash “will go to help cover restructuring costs.” Or, as Bloomie’s put it, “GM, the largest U.S. automaker, has said it needs to raise $4 billion to $7 billion by selling assets and adding debt to ensure it has enough liquidity to operate through the end of 2009. GM has lost $69.8 billion since the end of 2004, its last profitable year.” The reality is that Q3 will show another big loss; the loss might have put GM in violation of certain covenants/ratios in the loan agreement, which would give the bankers the right to deny funding and pull the line. Of course, we don’t know the details. But, as TTAC’s Deep Throat put it, this company is running close to the edge. Meanwhile, GM’s former captive lender GMAC (The General now owns 49 percent) renewed a credit facility with Citigroup yesterday. GMAC now has access to $13.8b, down from last year’s $21.4b.
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If I was the treasurer of GM and took a look at what happened this week (Lehman Brothers BK, the AAA rated AIG essentially being liquidated, Wachovia and WaMu still on the ropes, questions about the viability of Morgan Stanley and Goldman), I would not hesitate drawing down on the revolver to make sure I had the funds available, despite the negative arb. Who knows the financial health of my counterparties if I needed to draw down on the revolver in the future?
I believe that the closest comparison is how hard the Bancrofts tried to hold onto a company (the Wall Street Journal) despite shares going into the tank, and a paper that was losing relevance by the day. Wagoner and his crew take pride in being the C level execs of one of the most visible manufacturing company in the world. Compounding things is the fat salary and benefits which make rich golden parachutes look like chump change. I can't believe whoever holds GM shares hasn't booted all the crazies in charge of the company to make the hard decisions necessary. Then again, who are the crazies who knowingly hold GM stock (besides S&P passive investors)?