Exclusive: GM capital plan may delay credit rating upgrade

Wed Mar 11, 2015 4:09pm EDT
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By Ben Klayman

DETROIT (Reuters) - General Motors Co’s (GM.N: Quote) decision this week to give back up to $10 billion to shareholders over the next two years will likely delay one of its important goals: achieving a top-tier credit rating that would benefit its growing auto finance unit.

The No. 1 U.S. automaker has been building its GM Financial unit through acquisitions and more aggressive marketing to dealers. Automakers use in-house lenders to offer discounted financing on new cars and trucks for consumers and dealers. Reaching a single A credit rating would give GM greater flexibility to fund GM Financial at lower cost.

GM is still three steps from an A rating, but officials with Standard & Poor's Ratings Services and Moody's Investor Service said this week that the next upgrade could be delayed by GM's decision Monday to launch a $5 billion share buyback and boost its dividend.

"The way we are assessing the company's trajectory in terms of any upside ratings is that as of now it appears unlikely in the next two years," S&P credit analyst Nishit Madlani told Reuters.

GM on Monday said it agreed to operate with $20 billion in cash reserves, returning any excess to stockholders. As of the end of 2014, it had stockpiled $25 billion in hopes of rebuilding its debt rating.

S&P reaffirmed its investment grade rating of BBB- and a stable outlook, but Madlani said "in case of a modest downturn that level of cushion is not something we are comfortable with."

Before Monday, S&P might have considered an upgrade in 2016, he said.

Moody's has also delayed its timeline for a GM upgrade, senior vice president Bruce Clark said.   Continued...

General Motors headquarters at the Renaissance Center in Detroit, Michigan is seen in this file photograph taken August 25, 2009.   REUTERS/Jeff Kowalsky/Files