Standard & Poor's Corp. on Friday cut the ratings on $40 billion worth of General Motors Corp. debt, saying the world's biggest auto maker faces a tough road ahead despite plans to cut 74,000 workers and shut 21 plants.
The influential ratings agency started its review of GM in November, just a month before the auto firm announced its restructuring, meant to stem losses and improve profits.
"There will be gains, but there will be offsets as well--but in the end, performance could still be disappointing," S&P; analyst Scott Springzen said. "Even though their other businesses are doing well, that's not sufficient to make up for difficulties in North America."
The agency's ranking is a measure of GM's ability to repay debt. The lower the rating, the more risky buying GM bonds becomes.
The move could raise borrowing costs for GM if it must pay higher rates to attract investors to its bonds.
S&P; said it cut GM's senior debt to A-minus, the seventh-highest rating, from single-A, the sixth-highest. The ranks are edging toward the middle of the ratings spectrum.
The ratings on GM's preferred stock were also cut.
GM's preferred and preference stocks were cut to BBB-plus from A-minus, and S&P; said it is continuing to review the company's $28 billion in commercial paper.
It was S&P;'s second downgrade of the auto giant in little more than a year. In February, 1991, it lowered GM's rating by two notches to single-A.
GM has about $90 billion in debt.
Spokesman Terry Sullivan said GM was disappointed but that the downgrade would not increase its borrowing costs significantly.
The company's bonds were little changed in the corporate bond market, since the move was expected. GM's stock closed down 75 cents at $37.125 on the New York Stock Exchange.
Last December GM said it would cut 74,000 jobs and close 21 plants in an effort to remove a glut of capacity. The restructuring was aimed at stemming losses.
S&P; said that while GM has improved efficiency, the benefits could be offset by competition and a weak auto market.
GM took issue with the rating agency's opinion.
"We believe our recently announced aggressive program to rationalize GM's capacity and cost structure will strengthen GM's competitive cost position and our ability to offer an outstanding array of new products," Sullivan said.
S&P;, however, said asset protection for debt holders has eroded considerably the past two years as a result of GM's massive losses, higher debt levels and growing unfunded pension and medical liabilities.
"However, the world's largest industrial company continues to enjoy well above average financial flexibility," S&P; said.