3rd UPDATE:GM Auditors Raise Doubt On Auto Maker's Viability
06 March 2009 - 10:25AM
Dow Jones News
General Motors Corp.'s (GM) auditors cast doubt Thursday on the
Detroit auto maker's ability to survive without more U.S.
government loans, in a foreboding assessment of the company's
financial plight.
GM's continuing losses, negative net worth and an inability to
generate cash for continued operations led the auditors to
determine there was substantial doubt that the company can survive.
GM warned last week it may not be able to able meet its auditors'
"going concern" requirements.
The determination comes as GM tries to persuade bondholders to
swap around $16 billion in debt for equity in a restructured
company. Despite the auto maker's dire situation, a bondholders'
committee wants GM to restructure outside of bankruptcy, according
to people close to the situation.
Even an expedited, or so-called pre-packaged bankruptcy, "would
be a complete catastrophe," the person said. "From a bondholder's
perspective, it must be avoided at all costs.
"While a pre-pack would be better than a bankruptcy. It would
result in a free fall, guerilla warfare and could lead to
liquidation."
GM has said it could cost as much as $100 billion to restructure
and emerge from bankruptcy.
Advisers to the bondholders committee were scheduled to meet
Thursday with U.S. President Barack Obama's auto task force to
discuss government backing for any new debt issuance.
Representatives of the committee declined to comment Thursday.
GM disclosed the assessment by Deloitte and Touche in a filing
with the Securities and Exchange Commission. When it reported a
$30.9 billion loss for 2008 last week, GM warned it might not be
able meet its auditors' "going concern" requirements, meaning it
could break covenants on billions of dollars in debt in coming
months. However, GM said Thursday it had received waivers from its
lenders that would allow it to avoid having its loans recalled.
GM played down the significance of its auditors' conclusions.
"It is not fundamentally a big deal," said GM spokeswoman Julie
Gibson. She said GM's main concern was getting the waivers from its
lenders, which it managed to do.
"Negotiations will continue as they have" with bondholders and
the United Auto Workers, Gibson said. GM is trying to cut a deal
with the UAW that would change the terms under which the company
funds retiree health care, to relieve some of the company's $20
billion cost burden. GM needs this and other concessions to keep
$13.4 billion in government loans that have kept it
operational.
"If we fail to do so for any reason, we would not be able to
continue as a going concern, and could potentially be forced to
seek relief through a filing under the U.S. Bankruptcy Code," GM
said in the filing.
GM shares were down 34 cents, or 15%, at $1.86, at the close of
trading Thursday on the New York Stock Exchange. GM shares have
lost more than 90% of their value over the last year.
The formal going-concern warning is impacting GM's relationship
with some creditors. Terms of the company's $4.5 billion
revolving-credit facility, a $1.5 billion U.S. term loan and a $125
million inventory-financing facility allowed lenders to demand
instant repayment if GM's auditors expressed doubts about its
ability to remain a going concern.
GM has obtained waivers from those creditors, but with the
provision that the loans can be called if the Treasury doesn't
approve GM's viability plan.
The auditor's warning "should not be a revelation," but
underscores the auto maker's fundamental problems, Standard &
Poor's said in a statement reiterating its sell rating on GM
shares.
"GM is dependent upon the largesse and forbearance of the U.S.
and foreign governments to sustain its various entities through
this downturn," it said. The ratings agency also lowered its
estimate for 2009 U.S. auto sales to 10.55 million cars and trucks
from 10.8 million.
"We see international demand shrinking, as well, leading GM's
non-U.S. profits to evaporate," S&P said in a note. The company
also is seeking billions in dollars in aid from overseas
governments and has said it may even give up a majority stake in
its Opel unit to secure backing from European states.
The company warned it could be forced to seek bankruptcy court
protection if it can't somehow restructure the securities or
otherwise settle the obligation, as a default would trigger cross
defaults on other outstanding debt.
-By Sharon Terlep, Dow Jones Newswires; 248-217-7648.
(Andrea Thomas and Bhattiprolu Murti and contributed to this
article.)