After Eight Long Years in the Junkyard, GM Debt Returns to Investment Grade

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Saying that the company “has been on a steadily improving operational and financial trajectory since it emerged from bankruptcy,” Moody’s Investors Service on Monday lifted its rating on General Motors Co. (NYSE: GM) corporate debt to investment grade with a stable outlook. Moody’s assigned a ‘Baa3’ rating to GM’s corporate debt and eliminated the company’s previous junk rating and probability of default rating from the car maker’s debt. A new debt offering of senior unsecured notes, however, has been rated at ‘Ba1’.

Moody’s was positively buoyant about GM’s prospects:

GM is entering a robust phase of its new product introduction cycle in North America, and market response has been positive. Moreover, we expect that market fundamentals of the US auto sector will remain healthy, with industry shipments growing by 8.7% in 2013 and 2.9% in 2014, and minimal increases in incentive levels. … Including its joint venture operations, GM is one of the leading auto producers in China, with a share position of approximately 14%. This market accounts for about 30% of GM’s consolidated unit shipments and a significant portion of its earnings and cash flow. We expect that industry shipments of light vehicles in China will grow by about 10% in both 2013 and 2014. China affords GM with strong margins, good long-term growth prospects, and broad geographic diversification.

The automaker’s cash pile of $31 billion did not go unnoticed either. Moody’s did note that aggressive price competition from Japanese carmakers could be a risk to GM’s profitability if competitors like Toyota Motor Corp. (NYSE: TM) or Honda Motor Co. Ltd. (NYSE: HMC) should go after market share by reducing prices.

Both Standard & Poor’s and Fitch Ratings continue to rate GM debt at junk status. Ford Motor Co. (NYSE: F) saw its debt lifted out of junk status by Moody’s and Fitch last year.