Saturday, April 11, 2009

S&P Downgrades GM, Chrysler Rating On Bankruptcy Fears

. Saturday, April 11, 2009

By stockOzone team

Standard & Poor’s Rating Services lowered its debt ratings for Chrysler LLC and General Motors Corp., and added that bankruptcy is likely and could lead to the break-up of Chrysler.

The agency issued the warning Friday, saying it was lowering the debt ratings because of the increased possibility of bankruptcy if the two members of Detroit’s “Big Three” automakers don’t meet deadlines set by President Barack Obama’s administration, according to numerous media reports.

Obama’s auto plan calls for Chrysler to reach a deal for a merger or partnership with Italian automaker Fiat by the end of April, and for General Motors (NYSE:GM) to come up with a plan to restructure the company by the end of May.

S&P Recovery Analyst Greg Maddock told Reuters news agency in an interview that he believes if Chrysler were to go into bankruptcy it would go into liquidation and sell its assets.

"Instead of being reorganized, there would be no carmaker after bankruptcy," Maddock told the news agency.

Maddock told the Bloomberg news service that the lowering of the debt ratings also reflects the view of S&P that demand for light vehicles in North America remains weak.

Chrysler and GM have taken billions of dollars in federal bailout funds in order to stay afloat, and have asked for billions more. The government set the deadlines in order to determine if the company’s could come up with a viable plan for surviving the downturn in the global economy.

Ford Motor Co. (NYSE: F) is the only one of the Big Three in Detroit to not take federal bailout funds.

Disclosure: Author does not own any of the stocks discussed here.

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