Citing higher risk, Moody's downgrades GM's bonds

November 25, 1992|By Bloomberg Business News

NEW YORK -- Moody's Investors Service said yesterday that it VTC had lowered its ratings on $70 billion of debt issued by General Motors Corp. and its subsidiaries, General Motors Acceptance Corp. and GM Hughes Electronics Corp.

Senior debt of the nation's largest automaker was lowered to "Baa1" from "A2." Moody's also lowered the commercial-paper ratings of GMAC and GM's Hughes Electronics, to Prime-2 from Prime-1.

The downgrades signify a slightly higher risk of owning GM bonds and commercial paper. As a result, the automaker will probably have to offer investors a higher interest rate when it sells bonds.

Moody's said the downgrades reflect GM's weakening position in the North American auto market. Yesterday, GM reported that sales in mid-November declined 14.4 percent, to 67,144.

"Even though the company has taken significant steps to reverse this trend, it's going to take some time for these to take effect," said Michael Mulvaney, an analyst for Moody's.

GM's high cost structure and product weakness, particularly among midsize cars, is likely to keep its business in North America under pressure, Moody's said. Recent measures adopted by GM management to correct these weaknesses will take years to take effect, Moody's said.

Trading of GM's bonds yesterday was mostly uneventful because investors had expected a downgrade.

GM said it was acting to counteract the conditions that led to the lowering of its credit ratings.

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