Fitch Ratings Services has raised its Long-term Issuer Default Ratings (IDRs) and Preferred stock rating on General Motors Company (GM) to 'BB+' from 'BB' and to 'BB-' from 'B+,’ respectively.
The rating agency has also affirmed its Long-term IDR and Senior unsecured debt ratings on General Motors Financial Company, Inc. (GMF) at 'BB.' Long-term IDR rating on General Motors Holdings LLC (GM Holdings) is upgraded to ‘BB+' from 'BB' and Secured revolving credit facility rating is reaffirmed at 'BBB-.' Moreover, Fitch has conferred a stable outlook on all three entities.
The rating upgrades reflect the company’s ability to generate free cash flow, maintain a strong liquidity position along with low leverage, decline in pension obligations and improved product portfolio. The company’s strategy of maintaining a low level of automotive debt and a high level of cash and credit facility provides a financial flexibility which can resist the fluctuation in the auto industry.
However, the stable outlook depicts that the agency will not be upgrading the stock in the near future. Meanwhile, the rating could be further improved if the company’s margins from North America rise along with stabilization of financial performance from its European operations.
General Motors had cash and cash equivalents of $22.18 billion as of June 30, 2012, compared with $20.47 billion as of June 30, 2011. However, total debt (Automotive and Financial) increased to $14.79 billion as of June 30, 2012, from $4.71 billion as of June 30, 2011.
During the first half of the year, the company had net cash flow from operating activities of $6.03 billion, up from $4.37 million in the year-ago period. After deducting $4.05 billion and $2.49 billion of capital expenditures in the first half of 2012 and 2011, respectively, the company’s free cash flow stood at $1.98 billion for the six month period ended on June 30, 2012, compared with $1.87 billion for the six month period ended on June 30, 2011.
Detroit, Michigan-based General Motors has a business presence in almost 120 countries and facilities located in 31 countries. However, like its competitor Ford Motor Co. (F), the company's significant exposure to troubled Europe has adversely affected its operations.
Currently, General Motors retains a Zacks #3 Rank, which translates into a short-term Hold rating.
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GENERAL MOTORS (GM): Free Stock Analysis Report
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