GM to look at actions to promote separate rating for GMAC; Ford to step up use of securitization

New York, May 10 - General Motors Corp. said it will look at actions that would enable the rating agencies to assess General Motors Acceptance Corp. on a stand-alone basis in the wake of Standard & Poor's decision to downgrade the company's debt to junk.

Meanwhile Ford Motor Co. said it intends to increase its use of securitization and other asset-based financings as its response to the downgrade.

Both companies disclosed their intentions in 10-Q filings with the Securities and Exchange Commission.

On May 5, S&P lowered GM and GMAC to BB from BBB- and cut Ford and Ford Motor Credit to BB+ from BBB-.

A downgrade to junk of GM and GMAC by one of the other ratings agencies would cause increased borrowing costs and "further constrain their access to unsecured debt markets, including capital markets for retail debt," GM said. Replacement financing might be more likely to contain additional terms and conditions.

In the short and medium term, a further downgrade to junk would not have "a material effect" on GM's access to adequate capital because in recent years it has increased its use of other funding sources, including committed bank conduit facilities and asset-backed securities that are not directly affected by ratings on unsecured debt, the Detroit-based automaker said.

But, GM said, "management believes that the current ratings situation and outlook increases the level of risk of the corporation's funding strategy over the long term as well as the importance of successfully executing its plans for improvement of operating results."

As part of its continuous assessment of this issue, the company "is seeking to mitigate the increased risk by exploring whether actions could be taken that would provide a basis for rating agencies to evaluate GMAC's financial performance in order to provide GMAC with ratings independent of those assigned to GM."

At the moment, only Moody's Investors Service and DBRS assign different ratings to GMAC and GM.

Meanwhile Ford says it expects S&P's downgrade to result in increased borrowing costs.

It also expects Ford Credit to see "restricted" access to unsecured debt markets, which means it will have to reduce borrowings via commercial paper and unsecured term debt.

In response, Ford Credit plans to increase its use of "securitization and other asset-related sources of liquidity."

Ford Credit may over time have to reduce the amount of receivables it purchases, which could affect its profits, the Dearborn, Mich., automaker said.

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