General Motors Co.’s corporate credit rating was raised by Standard & Poor's Ratings Services from 'BB-' to 'BB+'. Its rating outlook was changed from positive to stable. S&P also raised its issue-level rating on GM's debt to 'BBB' from 'BB+' while the recovery rating stays at '1'.
Standard & Poor's credit analyst Robert Schulz said that the upgrade represents its view that GM's prospects for generating free cash flow and profits in its automotive manufacturing business continue to solidify due to its cost base in North America.
S&P also sees its prospects for a steady improvement in light-vehicle sales in North America into 2012.
The company estimates that the GM's automotive free operating cash flow in 2011 will be a minimum of $5 billion. This is about the same as 10% of the estimate of adjusted automotive and post-retirement debt in 2011. S&P assumed that GM can maintain its pretax EBIT margin in North America in the upper–single-digit percentage area and in the mid-single digit area in total for automotive.
GM is also expected to avoid incurring big losses in Europe. This upgrade looks at the continued assessment of GM's business risk profile as fair. Its financial risk profile is also seen to be significant.
According to S&P’s criteria, the combination of these profiles is consistent within a one-notch band of a 'BB' corporate credit rating. GM’s automotive operations in North America are expected to stay profitable, comparable to industry light-vehicle sales.
It may also post a sales figure that’s slightly lower than current levels (over 11.5 million units). It’s believed that GM has good prospects for achieving at least $5 billion in free cash flow from its automotive operations in 2012. This is expected even if the key U.S. auto market fails to recover significantly.