S&P; Cuts the Credit Rating on $86 Billion of GM’s Debt

Standard & Poor’s Corp., citing General Motors Corp.’s massive obligations to retirees, downgraded about $86 billion of the auto maker’s debt Wednesday.

S&P; said the auto giant will remain at a “significant competitive disadvantage for the foreseeable future” as it struggles to service its massive pension liability and retiree health care costs.

GM responded to the downgrade by saying it hopes to restore its credit ratings to former levels “as quickly as possible.”

On Monday, GM said it would take $22.2 billion in accounting charges in 1992 to reflect a new standard for retiree health care benefits. The charge, by far the largest of any U.S. company, assures GM of a record 1992 loss of more than $24 billion.

“Our concern is that between the pension and the retiree medical liabilities, the company faces a total burden of debt-like obligations that is considerably in excess of what we had assumed previously,” S&P; analyst Scott Sprinzen said.

As a result, the New York ratings concern downgraded GM’s senior debt rating one notch to BBB-plus from A-minus and GM’s preferred stock and preference stock ratings to BBB from BBB-plus.

The downgrades, which follow a similar move by Moody’s Investors Service Inc., mean GM will have to pay slightly higher interest costs on its borrowings.

S&P; said, however, that further erosion of GM’s credit quality over the next few years is unlikely.

The agency said it believes that GM’s new management will be effective in returning GM’s core North American automotive operations to at least a break-even level. But it noted that considerable challenges remain before GM’s overall financial performance recovers to a satisfactory level.