Why It Matters That GM Is Now Investment Grade At Fitch

Fitch Ratings has upgraded the Issuer Default Rating (IDR) for GM to BBB- from BB+. Additionally, Fitch upgraded GM’s unsecured revolving credit facility rating and its senior unsecured notes ratings to ‘BBB-‘ from ‘BB+’. GM has a stable outlook for its rating.

There were some other upgrades in GM’s credit rating in recent years. Standard & Poors raised their credit rating to investment grade in the fall of 2014. Prior to that, Moodys put GM at investment grade late in 2013.

According to Fitch:

The upgrade of GM’s ratings reflects the ongoing fundamental improvement in the company’s core business over the past several years. At the same time, recent events pertaining to last year’s recalls have given Fitch increased confidence that the company has the financial flexibility to navigate the remaining issues while maintaining an investment-grade credit profile.

Basically, Fitch expects GM to be profitable in its key North American business due to a combination of pricing strength, positive vehicle mix and further operational efficiency improvements. Outside North America, Fitch expects GM’s European operations to approach the company’s 2016 break-even target even with some weakness in Russia.

Compared with its position prior to the last recession, GM has a much lower breakeven level, stronger liquidity, lower leverage and a much more competitive global product lineup.

Fitch believes that GM’s leverage remains low for its rating category, despite its issuance of $2.5 billion in senior unsecured notes last fall and the company remains in a strong net cash position. The Credit rating agency also expects that the company’s liquidity position will remain strong, especially considering its $20 billion minimum automotive cash target.

Overall, Fitch believes the company’s operating profile and financial position are strong enough to allow the company to weather the industry cycle without jeopardizing its investment-grade status.

Shares of GM were up 1.8% at $36.44 on Thursday afternoon. The stock has a consensus analyst price target of $43.06 and a 52-week trading range of $28.82 to $38.99.