GM offers junk-like yields in fight to stay investment grade
General Motors Co. is selling bonds in its latest move to shore up liquidity in the pandemic.
The automaker is issuing debt in three parts, according to a person with knowledge of the matter. The longest portion, a seven-year security, may yield around 7 percentage points above Treasuries, the person said, asking not to be identified as the details are private. That’s well in-line with high-yield levels.
GM has suspended shareholder payouts and and boosted borrowing to amass more than $33 billion of cash that should sustain the company through months of uncertainty. It’s currently in talks with banks to raise a new $2 billion loan, after recently drawing down on a $16 billion revolver.
The auto industry has been slammed with economies in lockdown, but Chief Executive Officer Mary Barra managed to turn a bigger-than-expected first-quarter profit, prompting speculation that GM could post positive earnings for the full year. Meanwhile, rival Ford Motor Co. is expecting to lose $5 billion this quarter, though it was recently still able to sell $8 billion of bonds in its first drive through the high-yield market in years.
Fitch downgraded GM to one notch to BBB- with a stable outlook Thursday, noting that while the company’s credit profile will remain weak in the shutdown, it should be able to maintain investment-grade ratings once the worst of the pandemic has passed. It’s also rated one step above junk at Moody’s Investors Service, while S&P rates GM one notch higher. Both of those ratings are on review for downgrade.
JPMorgan Chase & Co., Bank of America Corp., Barclays Plc, Citigroup Inc., Deutsche Bank AG, Goldman Sachs Group Inc. and Morgan Stanley are managing GM’s bond sale, the person said.