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Recovery Report:
Table Of Contents
Overview Legal And Structural Considerations Issuer Credit Rating Rationale Recovery Analysis
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Recovery Report:
BB+/Stable/-$18,928 mil. 2015 Outstanding principal at default (mil. $) 5,000 400 1,500 Issue rating BBB NR NR Expected recovery Recovery rating (%) 1 NR NR 90-100 N/A N/A Maturity 2015 Various Various
2,000
NR
NR
N/A
Various
(For Standard & Poor's recovery rating methodology, see "Criteria Guidelines For Recovery Ratings," published Aug. 10, 2009, on RatingsDirect on the Global Credit Portal.)
Capital structure
GM's capital structure is substantially unleveraged, and its principal liability is unfunded pensions. The company has several smaller facilities available to its international subsidiaries and joint ventures. The revolving credit facility
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provides liquidity for working capital. The revolving credit facility permits additional senior secured first-lien debt, provided the borrowing base coverage ratio is at least 1.2:1.0 after incurrence. Additionally, second-lien debt is generally permitted, but second-lien debt maturing prior to the revolving credit facility is limited to $3 billion (excluding amounts that could be borrowed pursuant to the Energy Independence and Security Act of 2007). We assumed no additional loan amounts in this analysis. The facility also permits up to $2 billion in non-loan exposure--including hedging, letters of credit, and cash-management exposure--to be secured on a first-lien basis, provided the borrowing base coverage ratio is at least 1.0:1.0 after incurrence. Our default scenario assumes that there are $300 million of such claims at default.
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Documentation/covenants
Revolving credit facility availability is subject to compliance with a borrowing base. The borrowing base formula includes certain tangible assets at customary advance rates and limits eligible technology and trademarks to the lesser of $3.75 billion or 25% of the borrowing base, subject to a floor of $2 billion. In addition, liquidity (including revolving credit availability) must exceed $2 billion domestically and $4 billion globally.
Recovery Analysis
Table 2
--Simplified waterfall-Gross enterprise value at default Administrative expenses Net enterprise value at default Priority claims $18,928 mil. $1,704 mil. $17,225 mil. $687 mil.
Net enterprise value available to creditors $16,538 mil. $5,188 mil. 90%-100% $1,967 mil. N/A $2,070 mil. N/A
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$4 billion global minimum cash and liquidity requirement in its secured credit agreement. However, we did not include excess cash in our valuation, because we believe that the company would use such cash during the restructuring process following bankruptcy. We have also assumed the following: LIBOR increases by 200 basis points (bps), to 250 bps; EBITDA declines 64% from the latest 12 months ended June 30, 2011, to $4.7 billion; The revolving credit facility is assumed to be extended in 2013 or 2014, and that facility and various local facilities would be fully drawn at default; and There are no additional first- or second-lien debt amounts.
Valuation
We believe that if GM were to default, its business model would remain viable, given its global footprint, its extensive manufacturing and engineering resources, and the need (albeit reduced) for vehicles. As a result, we believe that lenders would achieve greater recovery value through a reorganization rather than through a liquidation of the company. In arriving at an enterprise valuation, we used a 4x multiple of EBITDA at default. We did not assign any value to the EBITDA or net worth of financial subsidiaries and affiliates, nor did we include any of their debt obligations in calculating the insolvency proxy. The valuation multiple of 4x reflects the cyclical nature of automotive manufacturing, the high and continuing capital investment required, and the low adjusted EBITDA margins achieved even in very profitable times after considering capital expenditures. The company's gross enterprise value at default in our simulation is $18.9 billion. Other assumptions include: The EBITDA contribution at default will be 60% for domestic operations, 15% for pledged foreign operations, and 25% for other unpledged operations. Local foreign debt plus accrued interest expense will total $5.1 billion at default. This debt would be treated as a priority claim on the enterprise value at subsidiaries that have local debt. Priority claims will total $687 million (primarily from capitalized leases we assumed would be affirmed). There will be $300 million in cash-management and hedging claims that would be considered a first-lien obligation. We estimate about $3.1 billion in nondebt unsecured claims (which consist primarily of rejected operating leases and unfunded other postretirement employee benefits for domestic non-United Auto Workers personnel). We estimate administrative expenses of 9% of the gross enterprise value.
Outcome
Our estimate of net enterprise value at default is $17.2 billion. However, the value available to senior secured lenders would be $9.1 billion. The $9.1 billion reflects reductions to net enterprise value for local priority claims and the unpledged value of foreign subsidiaries. We estimate senior secured revolving credit facility claims at default of $5.2 billion (the revolving credit facility outstanding plus six months of accrued interest) and other first-lien claims of $712 million (including six months of accrued interest and $300 million in cash-management claims). As a result, we believe that senior secured lenders could expect very high (90% to 100%) recovery in the event of a default.
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