DETROIT – General Electric Co. (GE) Tuesday said it will not withdraw a $2 billion loan facility from General Motors Corp. (GM) due to cuts in the automaker's debt ratings, but it will exit the business for strategic reasons.
Analysts said the news steadied trading in the stock and bonds of the world's biggest automaker, which has been shaken in recent weeks by falling confidence that the debt-laden auto giant could overcome soaring costs and foreign competition.
The Financial Times reported on Tuesday that GE Capital had withdrawn the $2 billion loan facility, days after debt rating agencies warned GM could be downgraded to "junk" bond status.
But GE's GE Commercial Finance (search) unit said it had agreed with GM last May it would stop funding by end-2005 the program, which sends early payments to GM's parts suppliers, because the "trade payables" business had limited scope for growth.
"We ... decided that it wasn't a growth business, so we decided to put together a plan to exit the business in an orderly way that was not disruptive to our customers," said GE Commercial Finance spokesman Stephen White.
After GM warned last week its earnings this year will be as much as 80 percent below forecasts, both S&P and Fitch ratings agencies had warned that a move to "junk" status for GM's debt ratings could occur at any time.
However, a GM spokesman on Tuesday said GE's decision was unrelated to the debt ratings. "GE's decision was made some time ago," GM spokesman Jerry Dubrowski said.
GE Capital earlier terminated a similar credit program with DaimlerChrysler AG (DCX), Dubrowski said.
GE's White would not disclose which other automakers were involved in its trade payables program, and Chrysler officials did not immediately return calls seeking comment.
GM's early payment program includes a trigger permitting GE Capital to immediately exit the business if Standard & Poor's or Moody's Investors Service cut GM's long-term debt ratings to one step above "junk" status, with a negative outlook.
Dubrowski said that the supplier payment program was the only funding program that had such a trigger.
Bond and equity analysts said the funding switch for the supplier payments had a muted impact on the nervous markets.
"It could be much ado about nothing," said Brian Bruce, head of equities at PanAgora Asset Management in Boston. "A company that's as big as GM tends to have a lot of people out there that are able to provide them credit, or access to the capital markets."
GM shares, which dropped more than 15 percent last week, closed 15 cents or 0.51 percent lower at $29.54 on the New York Stock Exchange (search).
General Motors Corp's bonds took back some of their early losses relative to U.S. Treasuries.
Spreads — the extra yield over Treasuries that investors demand for taking a company's credit risk — on General Motors Acceptance Corp. notes with a 6.125 percent coupon maturing in 2006 had widened 0.80 percentage point to 3.12 percentage points on Tuesday afternoon.
Earlier in the session, the spread traded as wide as 4.31 percentage points, according to MarketAxess.
Bond dealers have already started quoting GM's bonds as if they were already junk-rated, in the latest sign that investors are preparing for a credit downgrade for the automaker.