GM Auditors Raise Doubt On Auto Maker's Viability
By Sharon Terlep
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.
source:CNNMoney.com
