Standard & Poor's Cut GM, Chrysler Ratings

The watchful eye of rating provider Standard & Poor’s decided to cut their debt ratings of both US manufacturers GM and Chrysler. The company did that based on the fact that the two companies are less likely to recover should they go into bankruptcy, Autonews reported.

GM’s revolver rating was lowered from CCC to CCC- and received a revised recovery rating of 2 from 1. This means that in case of bankruptcy, holders of its secured revolver would get a 70 to 90 percent recovery of what they owned, lower than the 90 to 100 percent expectations they had before.

Chrysler was battered the worst by Standard and Poor’s as it got a CC revised corporate credit rating, also down from CCC. Unlike in GM’s case, lenders should expect a 30 to 50 percent recovery in case of a default payment

Out of the two, Standard & Poor’s believe that GM has the most changes to survive a Chapter 11 filling. "If Chrysler goes into bankruptcy, I would expect it to go into liquidation -- that its assets would be sold in whole or in part. "Instead of being reorganized, there would be no carmaker after bankruptcy," Greg Maddock, Standard & Poor's recovery analyst was quoted as saying by the aforementioned source.

Maddock was responsible for cutting his company’s rating regarding GM’s $4.5 billion senior secure credit line, based on the fact that the manufacturer’s assets, which would have been used to repay lenders, are shrinking by the hour.

"Basically GM is shrinking in terms of the assets they secure," Maddock added. "The debt stays the same." Another fact that contributed to the downgraded rating is the demand of light vehicles, which continues to stay low.