GM Will Draw on Remaining $3.5 Billion in Credit Line

By Jeff Green and Alan Ohnsman

Sept. 20 (Bloomberg) -- General Motors Corp., burning through cash after three years of losses, will tap the remaining $3.5 billion of a revolving credit line as the crisis on Wall Street threatens to crimp companies' ability to borrow.

The balance of the $4.5 billion line will go to help cover restructuring costs, GM said in a statement late yesterday. The Detroit-based automaker said it also completed a $322 million debt-to-equity exchange.

``The disruption in the credit markets have been profound,'' said Pete Hastings, a fixed-income analyst at Morgan Keegan & Co. in Memphis, Tennessee. ``GM has its own set of sizable problems, but I think this was a liquidity play.''


Banks have tightened lending amid the worst housing market since the Great Depression, and this week's bankruptcy of Lehman Brothers Holdings Inc. and government takeover of American International Group Inc. may further curb access to credit.

GM Chief Executive Officer Rick Wagoner has orchestrated a plan to raise $4 billion to $7 billion by selling assets and adding debt to ensure it has enough liquidity to operate through the end of 2009. GM, the world's largest automaker, has lost $69.8 billion since the end of 2004, its last profitable year.

``GM felt it was a very prudent thing to have the cash on hand to borrow at very attractive rates,'' spokeswoman Julie Gibson said in an interview. ``The timing was right, given the obvious instability in the financial markets.''

Not Expected

``This is not something we expected they would need to do until next year,'' said Mirk Mikelic, senior portfolio manager at Fifth Third Asset Management in Grand Rapids, Michigan, which oversees $22 billion in assets including Ford and GM debt.

GM has its own cash needs and its decision to use the credit line may add to the concern in the capital markets. ``It's not good either way,'' said Mikelic.

The automaker's shares rose $1.68, or 15 percent, to $13.08 yesterday in New York Stock Exchange composite trading. The credit-line action was announced after the close of regular trading. The shares have dropped 47 percent this year.

The credit line has been in place since July 2006. Funds being accessed may also be used to retire $750 million of debt coming due in October and for more than $1.2 billion of reorganization costs for bankrupt Delphi Corp., a former GM unit, the automaker said. Delphi disclosed GM's increased bailout costs Sept. 12.

`Mechanism Test'

GM's use of the first $1 billion from the credit line, announced Aug. 1, was a step to ``test the mechanism'' of that borrowing and help meet costs at a ``seasonal low point,'' Chief Financial Officer Ray Young told analysts on Aug. 13.

GM burned through $3.6 billion in the second quarter and said that at the end of June its supply of cash, marketable securities and other funds available fell to $21 billion from $23.9 billion at the end of the first quarter, and $23.6 billion a year earlier. The revolver wasn't included in those figures.

Steps by the U.S. government to shore up the financial system should prevent GM's mining of its revolver from becoming part of a flood of companies drawing down unused funds, Morgan Keegan's Hastings said.

``The prudent CFO or CEO may be tapping their lines of credit, especially if they know they are going to need liquidity in the short term and they're concerned about the market,'' Hastings said. The Federal Reserve's action ``may prompt people to wait and see now, because people certainly were on the verge of panic.''

Government Action

The U.S. government yesterday said it is taking steps to cleanse banks of troubled assets and halt an exodus of investors from money markets in the biggest expansion of federal power over the financial system since the Depression.

The government took over AIG, Fannie Mae and Freddie Mac in the past 13 days, a period when Lehman Brothers filed for bankruptcy and Americans pulled a record $89 billion from money- market funds.

The Bush administration sent to Congress today a $700 billion proposal granting broad power to the U.S. Treasury Department to acquire troubled assets now on the balance sheets of U.S.-based financial companies.

The legislation gives Treasury Secretary Henry Paulson authority to own as much as $700 billion in mortgage-related assets at one time. The bill would raise the nation's debt ceiling to $11.315 trillion from its current $10.615 limit.

Government Loans

GM, along with Ford Motor Co., Chrysler LLC and their suppliers, are also asking Congress to appropriate about $7 billion to back $25 billion in government loans to pay for the shift to build more fuel-efficient models.

It's possible many of the actions taken to gain funds from the market were initiated before the Fed action and new actions may abate, Hastings said.

Ford, the second-largest U.S. automaker, on Sept. 16 said it was assessing the impact of Lehman's failure on $1.13 billion of lending agreements it had with subsidiaries of the investment bank.

GMAC LLC, the money-losing home and auto lender partly owned by GM, renewed a credit facility with Citigroup Inc. yesterday, giving the company access to $13.8 billion, down from $21.4 billion that was available last year. GM sold 51 percent of GMAC to Cerberus Capital Management LP in November 2006.

International Lease Finance Corp., the airplane-leasing company owned by AIG, said Sept. 19 it is borrowing $6.5 billion in emergency funding, the maximum amount allowed under its three credit lines.

Seeking Cash

ILFC asked its lenders for the cash on Sept. 16, the day New York-based AIG agreed to give the government an 80 percent stake of itself in exchange for an $85 billion loan.

AIG's unit that makes home and auto loans, American General Finance Inc., said Sept. 19 in a separate filing that it borrowed $4.58 billion under its credit facilities, and said it too asked for the money on Sept. 16.

``Everyone is running to cash, hoarding it, and we're not out of the woods yet,'' Mikelic said. ``There's a little less pressure with the government stepping in. But the government needs to keep printing money, printing securities, even if there is negative yield.''

To contact the reporters on this story: Jeff Green in Southfield, Michigan, at jgreen16@bloomberg.net; Alan Ohnsman in Los Angeles at aohnsman@bloomberg.net.