(The following statement was released by the rating agency) CHICAGO, September 23 (Fitch) Fitch Ratings has assigned a rating of 'BB+' to General Motors Company's (GM) proposed senior unsecured notes. The proposed notes are being issued in a private placement in up to three tranches, with five-year, 10-year and 30-year maturities. GM's IDR is 'BB+' with a Positive Outlook. GM plans to use proceeds from the proposed notes to redeem 120 million shares of its series A preferred stock held by the United Auto Workers' (UAW) Voluntary Employee Beneficiary Association (VEBA) for cash consideration of $3.2 billion. Although the proposed notes will increase GM's automotive debt, Fitch expects GM's leverage (automotive debt/Fitch-calculated EBITDA) will rise only slightly above the June 30, 2013, level of 0.5x, and leverage is likely to remain below 1x over the intermediate term. The transaction is expected to improve GM's automotive free cash flow (FCF) going forward, as the proposed notes are likely to price well below the 9% dividend on the series A preferred stock. KEY RATING DRIVERS GM's ratings and Positive Outlook are supported by its very low automotive leverage, strong liquidity position, continued positive FCF-generating capability (excluding voluntary pension contributions), reduced pension obligations, and improved product portfolio. GM's ratings are further supported by its position as one of the most geographically diverse global automakers, with a strong market presence in China, Southeast Asia and Latin America. Looking ahead, Fitch could upgrade GM's ratings within 24 months if its operational performance continues to improve and the profitability of its North American operations continues to grow. Other factors supporting an upgrade would be the continued strengthening of GM's global vehicle portfolio, stabilization in its European business, and a further reduction in its pension liabilities. Despite its stronger financial position, GM still faces a number of challenges. The company continues to work on improving the efficiency of its global operations, and profitability, particularly in North America, has not yet reached the levels of its strongest competitors. Longer term, GM's ongoing enterprise-wide restructuring work should yield meaningful improvements in efficiency and profitability, but in the near term, it risks adding incremental cost and complexity to the business. Other challenges include the need to turn around GM's loss-making operations in Europe, reducing the size of its significant pension liabilities, and meeting the requirements of tightening global emissions, fuel economy and safety regulations. GM's automotive cash position (including cash equivalents and marketable securities) declined over the past year as the company used approximately $5.5 billion to repurchase a portion of the U.S. Treasury's equity stake and another $2.3 billion to transfer its U.S. salaried pension plan to a group annuity contract. GM also used $1.4 billion to redeem GM Korea's outstanding preferred shares and made a $1.3 billion equity injection into General Motors Financial Company, Inc. (GMF) to help fund the acquisition of certain non-U.S. operations of Ally Financial. Despite these cash outlays, GM's automotive cash position remained strong at $24 billion as of June 30, 2013. Total automotive liquidity, including $10.6 billion in availability on the company's primary revolvers, was $35 billion. FCF (calculated by Fitch as automotive cash from operations less capital expenditures and preferred dividends) was a use of $193 million in the 12 months ended June 30, 2013, primarily due to the aforementioned pension actions. However, Fitch expects full-year automotive FCF will be positive in 2013, with further growth in FCF over the intermediate term. GM's low automotive leverage remains a key driver of its ratings and Outlook. As of June 30, 2013, leverage (automotive debt/Fitch-calculated EBITDA) was only 0.5x, and funds from operations adjusted leverage was only 1x. GM ended the second quarter with $4 billion in automotive debt, primarily composed of various bank borrowings, private note placements and capital leases, much of which is non-recourse to the company. As noted earlier, Fitch expects the transactions announced today to have only a minor effect on GM's leverage calculation. As of year-end 2012, GM's global pension plans (including certain unfunded non-U.S. plans) were underfunded by $28 billion, with about half of that in the U.S. However, Fitch expects the rise in long-term interest rates seen thus far in 2013 will result in a significant improvement in the plans' funded status when they are remeasured at year-end 2013. Following the transfer of its U.S. salaried plan to a group annuity in 2012, GM does not expect to have any required pension contributions in the U.S. for the next several years. RATING SENSITIVITIES The Positive Outlook suggests that Fitch could upgrade GM's ratings within 24 months if current trends continue as expected. Specifically, Fitch will look for the company to increase its profitability on a sustained basis, particularly in North America, as well as further stabilize the financial performance of its European operations. A further decline in the underfunded status of the company's pension plans would also contribute to an upgrade. Most important, an upgrade to 'BBB-' will require further conviction that GM's operating and financial profiles are strong enough to withstand the inherent risks of the global auto industry and sustain an investment-grade credit profile in a period of severe economic stress. Although the Positive Outlook suggests a negative rating action is not expected within the next 24 months, Fitch could consider a negative action on an unexpected material decline in GM's financial or operational performance. A significant downturn that drives GM's total liquidity below $25 billion for an extended period or a poor market reception to the company's new vehicles could lead to a negative rating action. Likewise, a significant increase in GM's automotive leverage, could also lead to a negative rating action. Contact: Primary Analyst Stephen Brown Senior Director +1-312-368-3139 Fitch Ratings, Inc. 70 West Madison Street Chicago, IL 60602 Secondary Analyst Craig D. Fraser Managing Director +1-212-908-0310 Committee Chairperson Mark Oline Managing Director +1-312-368-2073 Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: [email protected]. Additional information is available at 'www.fitchratings.com'. Applicable Criteria and Related Research: -- Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage (Aug. 5, 2013); -- Evaluating Corporate Governance (Dec. 12, 2012); -- Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers (Nov. 13, 2012). 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