GM Gets The Same Credit Rating As Ford. Similar Market Cap Valuation Coming?
Bloomberg reports that the credit rating firm Fitch Ratings has given GM a BB- credit default rating, the same as Ford Motor Credit. The difference: Ford has over $20b in debt, while GM is sitting on less debt and more cash. So why the identical rating? Fitch’s Stephen Brown explains:
Although they have similar ratings, you sort of get to them from different paths. GM doesn’t have a whole lot of debt, but they have very large pension obligations. Ford’s pension obligations are significant, but they’re lower than GM’s by quite a bit. But Ford has a lot of debt.
At the end of the first half of 2010, GM had $32b in cash and $8b in debt, while Ford had $22b in cash and $27b in debt. GM’s pensions, on the other had, are underfunded to the tune of $27b, while Ford’s are underfunded by $6.1b. Analysts have consistently suggested that GM’s IPO valuation should be in the neighborhood of Ford’s $40b market cap, and an identical credit rating seems to confirm the wisdom (or at least the popularity) of the comparison. Unfortunately, a $40b GM valuation would fail TTAC’s last standard for even marginal bailout “success.” After all, if GM is worth less than the $50b taxpayers put into it, there’s going to be no chance of spinning the IPO as a success.
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I don't see how the credit rating equals market cap. You can probably find several companies with vastly different credit ratings with similar market caps and ones with the same rating with different market caps. GM should and likely will have a larger market cap than Ford because of how GM is working so well in growth countries. I don't know what it will be, but 40 billion would be a joke.
GM didn't go through a real bankruptcy in my opinion. Nobody in their right mind would have dumped a nickel into GM. It was / is worthless. Has been for years. The $50B just bought time. They will continue to chew through that and when the bank account is empty they will be right back where they were pre-bankruptcy. The key is for them to raise some cash to defer the liquidation as long as possible. Eventually US interest rates will rise (can't go lower than zero) the new car market will be crushed. Good luck finding folks with kick butt credit scores willing to borrow $35K at 12% to buy a GM.. Once the cost rises significantly due to financing, people will get very picky about what they buy.
Fitch was one of the ratings agencies responsible for the mortgage meltdown. They rated toxic mortgage pass-throughs AAA because they were well paid to do so. Whatever rating GM got means absolutely nothing from one of the whore rating agencies.