DETROIT – Ratings agency Standard & Poors said today its credit ratings on General Motors debt will not be affected by GMs decision to take $37.38 billion in noncash charges in the third quarter.
But the agency said the reasons GM decided to take the charges were worrisome.
In this respect, the difficult outlook for automotive operations in the U.S. and Germany, which we do not expect will be reversed during 2008, was also one reason behind GM's decision to establish the reserve, Standard & Poors said in a statement.
We do not expect the charge to have any negative effect on GMs liquidity or compliance with financial covenants.
Standard & Poors noted that GM reported negative automotive operating cash flow of $2.7 billion for the third quarter, including $200 million of cash restructuring costs. That was an improvement from negative automotive cash flow of $5.1 billion in the third quarter a year ago.
The third quarter is typically a weak period for the Michigan-based automakers cash flow, given the late summer shutdown, the statement said.
Nonetheless, we still view GMs cash use in the most recent period as a concern, reflecting in part the gradual erosion of industry demand in North America, which will remain a problem.
The agency rates GM at five levels below investment grade and has a stable outlook on the automaker, indicating a rating change is not expected over the next two years.
Meanwhile, Moody's Investors Service lowered its GM rating outlook to stable from positive, indicating there is less chance of a rating upgrade in the next 12 to 18 months.
"The recent and continuing erosion in U.S. market conditions will likely result in GM's performance during 2008, and possibly into 2009, being weaker than originally anticipated," Moody's said in a news release.
Reuters contributed to this report