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From the Detroit Free Press:

GM will face higher costs for borrowing

Junk status may add $16 million per year

May 11, 2005


General Motors Corp. may be forced to pay higher bank fees to renew a $4.55-billion line of credit after losing its investment-grade rating from Standard & Poor's.

General Motors Acceptance Corp., the finance unit of the world's largest automaker, now pays a fee of 15 basis points, or 0.15 percentage point, to have the bank line available, according to data compiled by Bloomberg. Companies with junk ratings from S&P typically pay fees three times as high, Bloomberg data show.

"Their interest costs will definitely rise" on any new loans, said Efraim Levy, an S&P equity analyst who has a sell recommendation on GM. JPMorgan Chase & Co. and Bank of America Corp. arranged the current credit a year ago. It expires June 13. GM's cost to keep the bank line would rise from $6.8 million a year to $22.8 million if it's charged the average 50 basis-point fee incurred by companies that S&P rates BB. GM is likely to pay less than that because it has investment-grade ratings from Moody's Investors Service and Fitch, Jerry Dubrowski, a spokesman for GM, said in an interview.

"It is our intention to renew this facility," Dubrowski said. "We will have to see what the interest costs will be."

JPMorgan spokesman Michael Dorfsman and Bank of America spokeswoman Louise Hennessy, both in New York, declined to comment.

GM is the biggest corporate borrower ever to be lowered to the high-yield, high-risk category. Last week, S&P cut ratings on about $200 billion of the company's unsecured debt two levels to BB, two short of investment grade. Moody's and Fitch said they might cut GM to junk, too.

Typically, it costs BB-rated companies about 180 basis points more than benchmark interest rates to draw on bank credit lines. Under its existing credit line, GM would pay a 77 basis points margin to borrow, Bloomberg data shows. The difference would mean an extra $10.3 million in extra interest costs on every $1 billion drawn.
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