NEW YORK -- Fitch Ratings on Wednesday cut its ratings on General Motors deeper into junk territory and said it may cut them again, citing concerns about costs the automaker may incur to help its supplier Delphi Corp. reach an agreement with its union.
Any extended labor disruption at Delphi, GM's main supplier, would have an immediate impact on GM's ability to operate and would quickly reduce liquidity, Fitch added.
Delphi's unions said on Monday they have formed a coalition to fight wage and benefit cuts proposed by the auto parts supplier, which filed the biggest bankruptcy in automotive history on Oct. 8.
In addition to possible costs of averting a Delphi strike, Fitch said it is also concerned that new pension legislation could force GM to remeasure its liabilities or boost its required pension contributions.
Fitch said the ratings of GM's finance arm, General Motors Acceptance Corp., were not affected but remain under review. GM has announced plans to sell a controlling stake in GMAC, and lack of progress or clarity on a sale by the first quarter of 2006 would likely result in a downgrade, Fitch said.
Yields on GM's bonds rose relative to Treasuries as investors demanded more compensation for their risks. Yields on GM's 7.2 percent notes due in 2011 rose to 8.36 percentage points more than Treasuries, about 0.50 percentage point higher on the day, according to MarketAxess.
Fitch cut GM's issuer default and senior unsecured debt rating two notches to "B-plus," the fourth-highest junk rating, from "BB." Rating downgrades usually raise borrowing costs.
GM and its financial unit had $285 billion of consolidated debt at the end of September, with most of that total at GMAC.