(Press release provided by Fitch Ratings)
NEW YORK, Aug 16 - Fitch Ratings today released its comments on the recent restructuring announcement by General Motors Corp. (GM) minority-owned (49%) Isuzu Motors Ltd. (Isuzu). In total, Fitch sees these actions as positive for GM, as it has effectively secured control of the Isuzu assets that directly impact GM. GM's senior unsecured debt is currently rated 'A-', while its short-term debt is currently rated 'F-2'. The Rating Outlook for GM is Negative.
Assuming Isuzu's plan receives approval from its creditors, GM will inject JPY60 billion (approx. US$500 million) into Isuzu. Of this total figure, JPY50 billion (approx. US$420 million) represents the acquisition of interests in existing joint ventures and intellectual property, while the remaining JPY10 billion (approx. US$ 80 million) represents an equity infusion. When combined with the required consolidation of US$ 300 million of existing debt held by these joint ventures, the total impact on GM's net liquidity will be approximately US$800 million.
As a part of Isuzu's reorganization, GM will purchase an additional 20% stake in DMAX, Ltd., a joint venture between General Motors and Isuzu. This joint venture, located in Ohio, operates an engine plant that is the sole supplier of diesel engines to General Motor's very profitable full-size truck platform. This engine, the Duramax 6600 V8 engine, is well regarded by industry followers and has been key to GM's renewed success in the heavy-duty segment of the light-truck market. By acquiring a controlling stake in the joint venture, GM has limited possible supply disruptions that could impact the sales of its profitable full-size trucks.
GM is also acquiring a 60% stake in Isuzu Motors Polska Sp. Z.O.O. (Ispol). Based in Poland, this operation makes the small-displacement engines utilized in GM's European car business. By securing a controlling stake in Ispol, GM has solidified its diesel engine position in Europe as it attempts to meet rapidly increasing European demand for diesel-powered vehicles.
In addition to these two controlling stakes in important joint ventures, GM is also acquiring the ownership of the technologies associated with the Duramaxand Circle L engines manufactured in these facilities. GM will also purchase ownership of other vehicle and engine technologies that it would have otherwise paid for through royalties over time.
By participating in Isuzu's restructuring GM will not only acquire valuable assets, but will also help ensure Isuzu's continued participation in existing joint programs. These include existing efforts in light and medium-duty trucks. One of the more important of these programs is GM's upcoming mid-size truck. Developed in coordination with Isuzu, this truck represents a strong move forward for GM's truck portfolio. These vehicles (currently named the Chevrolet Colorado and the GMC Canyon) will replace the existing Chevrolet S-10 / GMC Sonoma. Similar in size to GM's current mid-size utilities and possessing engines from the same extremely architecture as popular in-line six engine family, the increased size and features of this new product will present much stronger competition to trucks like the Ford Ranger, Dodge Dakota, Nissan Frontier, and Toyota Tacoma.
In addition to the approximately US$420 million spent on asset acquisition, GM will infuse approximately US$80M of equity into Isuzu. Under the current restructuring plan, GM's existing equity (which has been written down to zero by GM) will be canceled. The US$80 million equity infusion will represent approximately 12% of Isuzu's new equity.
Support for Isuzu is not limited to GM's efforts, as the current plan would entail Isuzu's bank group not only swapping JPY100 (approx. US$ 833 million) of debt into preferred equity, but also providing the additional loans necessary for the restructuring.
Fitch will continue to monitor this issue for further developments.