As Default Risk Soars, GM Draws Down $16 Billion From Credit Lines, Suspends Guidance

The credit market is pricing the odds of default for General Motors at 49% as the economic collapse triggered by COVID-19 mitigation ripples through almost every industry.

And so, like many other companies, GM is erring on the side of more cash is better and announced today it is drawing down $16 billion from its credit lines and suspending its guidance:

General Motors announced today that it intends to drawdown approximately $16.0 billion from its revolving credit facilities. This is a proactive measure to increase GM’s cash position and preserve financial flexibility in light of current uncertainty in global markets resulting from the COVID-19 pandemic. The funds will supplement the company’s strong cash position of approximately $15 billion to $16 billion expected at the end of March.

“We are aggressively pursuing austerity measures to preserve cash and are taking necessary steps in this changing and uncertain environment to manage our liquidity, ensure the ongoing viability of our operations and protect our customers and stakeholders,” said Mary Barra, GM chairman and CEO.

Over the past several years, we have made necessary, strategic decisions and structural changes that have transformed the company and strengthened the business, better positioning us for downturns.”

In addition, GM Financial (GMF) has strong liquidity and capitalization. GMF had $24 billion of liquidity at the end of 2019 and expects to end the first quarter with similar levels of liquidity. Its liquidity level is targeted to support at least six months of cash needs, including new originations, without access to capital markets. GMF is managing below its target leverage ratios. Additional details can be found here.

“GM Financial has prepared for times like this by maintaining a strong financial position and ready access to cash. We are confident that we will be able to navigate the challenges created by this environment without capital from GM,” said Dan Berce, GM Financial president and CEO.

GM is also suspending its 2020 guidance due to uncertainty around the business impact of the COVID-19 pandemic.

It would appear The Fed’s unlimited money printing (and CP backstop) and the promise of a fiscal bailout were just not enough for GM’s management. The question is – will they use the credit line funds to buyback stock, retire debt, or maintain their workforce throygh this interruption?