Leading US auto companies facing possible bankruptcy - S&P

10 April 2009 22:47  [Source: ICIS news]

HOUSTON (ICIS news)--Standard & Poor’s (S&P) lowered the credit ratings on Friday for US auto majors General Motors (GM) and Chrysler due to lower vehicle demand and said both companies are likely to default – through either a bankruptcy or a distressed debt exchange.

“The lowering [of GM’s rating] reflects our view of the persistently weaker demand for light vehicles in North America, as well as declining pools of assets securing the revolving credit facility,” S&P recovery analyst Greg Maddock said.

While S&P said lenders to GM could expect 90-100% recovery in the event of a payment default, Chrysler lenders would likely only receive 30-50% recovery, according to S&P.

"The lowering of our issue ratings reflects lower recovery estimates, given our current view that Chrysler would be unlikely to emerge from bankruptcy as one reorganised entity," Maddock said.

"We believe that if the company filed for Chapter 11 bankruptcy protection, many of its assets and operations would be sold in discrete transactions over time, while other segments may be closed," he added.

S&P said it expected a bankruptcy filing from Chrysler to occur around the end of April or shortly thereafter unless the company reaches an agreement on a partnership with Fiat SpA and concessions with its main labour union and secured lenders.

Meanwhile, S&P said it considered Ford Motor's tender offer this week to reduce its debt as a distressed exchange, making it tantamount to a default as well under the rating service’s criteria.

Automobiles are an important chemical end market, with each vehicle having an average of $2,200 (€1,672) worth of chemistry, according to the American Chemistry Council (ACC).

Automobile parts include rubber hoses, plastic dashboards, catalysts, fibres, adhesives and coatings.

($1 = €0.76)

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By: Ben DuBose
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