General Motors' $5.6 billion revolver shot up 10 points to 94 after the company said in its 10-K that the restatement of financial statements could restrict its ability to draw on its unsecured revolver. GM said it may have to amend or replace the revolving credit facility. If it does this, lenders would be paid back at par. A trader said about $150 million of paper traded on speculation that a new deal would be done.
GM announced in March that it was restating its financial statements in relation to the classification of cash flows at ResCap, the residential mortgage subsidiary of General Motors Acceptance Corp. It increased its 2005 loss to $10.6 billion, from $8.6 billion. In the filing, GM said the restatement means there is a high risk that it will not be able to borrow under the facility. It added that it is exploring the possibility of amending or replacing the existing facility.
Moody's Investors Service downgraded GM's corporate family rating and senior unsecured debt to B3 from B2 after the announcement that it may not be able to draw upon the revolver. The ratings agency said that an alternative option for GM to maintain access to its revolver is to grant collateral to its lenders. Moody's noted that granting such security could contribute to a downgrade of the unsecured debt. The news did not have a negative impact on the bonds, however. A trader said it is likely the company has the ability to obtain a new revolver. He said this is good for the unsecured debt because it solidifies the credit. GM's '33 bonds were up a point-and-a-half to 74. A GM spokesman did not return calls.