GM Fails to Make Investment Grade

Automaker's $26 bln pension termination is not enough to improve its credit rating.

General Motors Co.’s record $26 billion pension termination falls short of improving the largest U.S. automaker’s finances enough to let it join Ford Motor Co. as an investment-grade marque.

While transferring some retirement obligations to a Prudential Finance Inc. unit will remove liabilities from Detroit-based GM’s books, the use of as much as $4.5 billion of its own cash “will balance out” the benefits, Moody’s Investors Service said in a report yesterday.

GM Swaps

Five-year credit-default swaps on GM have added 32 basis points to 385 basis points since May 31, the day before it announced the pension change, according to prices compiled by Bloomberg. That means investors pay $385,000 annually to protect $10 million of GM’s debt from losses. Rising credit swap prices imply increasing investor concern that the company may default on its debt.

Insurers Rally

GM posted a profit of $9.19 billion and regained its status as the world’s top selling automaker last year, following a U.S.-government bankruptcy reorganization in 2009.

‘Major Overhang’

“Those of us with a longer, historical view recognize that it’s been a major overhang on the company,” Johnson said of the pension liabilities.

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