GM Bankruptcy Said Possible

By Dena Aubin
NEW YORK (Reuters) - A bankruptcy by General Motors Corp. is not "far-fetched" if present trends at the company persist, Standard & Poor's said on Monday, shortly after cutting GM's ratings deeper into junk territory.
The downgrade and S&P's comments initially sent GM shares and bonds lower as investors fretted about the rising risk that the world's largest automaker will have trouble paying back all of its debt.
"In the past we might have felt at different points that the concerns about bankruptcy risk were way overplayed," said Scott Sprinzen, speaking on a conference call with reporters and analysts.
"At this juncture, it's our conclusion that this isn't a far-fetched possibility if the kind of deterioration in results we've seen over the last few quarters should continue," Sprinzen said.
GM spokeswoman Gina Proia said the automaker has no strategy or intention to declare bankruptcy.
"GM has an aggressive and well thought-out strategy to turn around our North American business and we're making progress in some important areas," she said.
S&P cut GM's corporate credit rating by two notches to "B," five steps below investment grade, from "BB-minus." The outlook is negative, meaning the rating is likely to be lowered again over the next two years.
S&P's rating on GM is the lowest of the three major rating agencies.
GM has lost nearly $4 billion this year as it battles high health care and commodity costs, eroding U.S. market share and slumping sales of its once-profitable sport utility vehicles.
Consolidated debt outstanding was $285 billion on September 30, S&P said.
"The changes that will have to occur to turn this company around to cause it to be a profitable auto manufacturer are huge," said Dan Zaldivar, fixed income analyst at RBC Capital Markets in Chicago. "This is a very big ship and it turns very, very slowly."
Ratings on GM's finance arm, General Motors Acceptance Corp., were not changed but remain on review with "developing" implications, meaning the direction of the rating is uncertain.
The developing status reflects the possibility that GM may sell a controlling stake in GMAC to a highly rated financial institution, S&P said.
"This year has witnessed a stunning collapse of GM's financial performance compared with 2004 and initial expectations for 2005," S&P said.
Net losses at North American operations could reach $5 billion for the year, even before substantial impairment and restructuring charges, the rating agency said.
An industrywide falloff in demand for sport utility vehicles makes it doubtful that GM's new models can help restore its North American operations to profitability, S&P added.
S&P's downgrade came on the same day that bids were due to buy a controlling stake of GMAC as GM tries to restore the unit's investment-grade ratings. Borrowing costs at GM and its financial unit have soared since they were first cut to junk in May.
GM's bonds with an 8.375 percent coupon due in 2033 fell to 71.1 cents on the dollar from 73.25 cents on Friday, according to MarketAxess.
In after hours trading, its shares fell 31 cents to $22.74 on Inet from a close of $23.05 on the New York Stock Exchange.
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