In need of cash, GM will sell more stock

November 11, 1992|By New York Times News Service

DETROIT -- Saddled with large capital expenditures even as it has racked up losses from operations, General Motors Corp. registered with the Securities and Exchange Commission yesterday to raise up to $1 billion from a new issue of preference stock.

Added to GM's seven other equity offerings since June 1991, the issue increases to nearly $8 billion the amount raised in equity markets in less than two years. The company said it expected to offer the first shares of the new issue within a few weeks.

"I wouldn't want to bet this is the last time" that GM raises equity, said David Healy, automotive analyst for S.G. Warburg & Co. The automaker lost $4.45 billion in 1991 and $970.7 million through the first nine months of 1992.

While GM has been absorbing these losses, it has been forced to spend $7 billion to develop new models and retool its factories. Moreover, the company continues to pay dividends that total about $500 million annually on its common stock.

Because of the tight finances, GM said this week that it was cancelingthe redesign of two of its aging midsize cars: the Oldsmobile Cutlass Ciera and the Buick Century.

The two models, first introduced in 1982, are built at a factory in Oklahoma City, whose future is not clear after 1996. As recently as August, GM had said that new versions of the cars would be built.

GM also postponed until 1996 the redesign of another midsize car line consisting of the Chevrolet Lumina, Buick Regal, Oldsmobile Cutlass Supreme and Pontiac Grand Prix, according to Automotive News, a weekly industry publication.

A GM spokesman declined to confirm the report.

The company could face even more expenses as a result of talks its labor negotiators are having with the United Automobile Workers about buyouts of some employees.

"Buyouts and retirements are also going to eat up cash," Mr. Healy said.

Preference stock, which pays a fixed dividend, outranks commonstock but is behind preferred stock in the order of dividend payments.

By selling preference stock, GM can avoid borrowing, which would further weaken its balance sheet and threaten its already shaky credit rating.

A reduced credit rating would, among other things, make it more difficult for the company's financing subsidiary, General Motors Acceptance Corp., to continue borrowing at favorable interest rates.

The preference-stock issue was termed a "short-term positive" by Scott Sprinzen, director of corporate finance for Standard & Poor's Corp., the credit rating agency. But he cautioned that "one way or another the company can't continue to tap the equity market to make up for poor performance."

S&P and Moody's Investors Service have both said that they are monitoring GM for a possible downgrading of its credit rating.

GM said Lehman Brothers would serve as lead manager for the initial offering. The shares will be issued from time to time, according to market conditions, GM said.

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