GM Could Be Upgraded To 'Investment Grade' at Moody's

General Motors Company (NYSE: GM) may soon get to be an ‘investment grade’ company on its credit ratings.  While this might not mean much on the equity level of the company, the news implications are that GM’s cost of borrowing would be lower.  Moody’s Investors Service came on late on Tuesday and affirmed the Ba1 Corporate Family Rating of GM.  What is more important is that Moody’s said that it is maintaining a positive rating outlook on GM.

Moody’s said in its report, “GM’s credit quality continues to improve and the company remains on track to regain an investment grade credit rating over the course of the next 12 months.”   The outlook and rating reflect the highly competitive North American business model that the company is expected to maintain.  Moody;’s expects that GM will leverage its improved cost structure as it brings new product introductions to market.

Another positive is that the company has a strong position in high-growth Asian markets such as China. Here is where investors should just go ahead and expect an upgrade as long as the global slowing doesn’t get too deeply in the way: “These strengths should enable GM to generate credit metrics that could be supportive of an investment grade rating in the near term.”

Some challenges with the current Ba1 rating are execution risks, increasing the use of global platforms, and improving the competitive position of its European operations.  Moody’s also included, “Upward movement in GM’s rating could be supported if the company continues to execute its operating and financial plan, and if there is moderation in the economic and financial uncertainty in Europe.”

GM shares closed won 0.2% at $21.50 today, but shares are up 0.7% at $21.65.  Is it possible to have an investment grade rating when the U.S. taxpayers own such a large stake in GM?

JON C. OGG