Fitch: General Motors' Legal Settlements Remove Uncertainty
The settlements do not affect GM's current ratings or outlook. Fitch currently has GM's long-term Issuer Default Rating (IDR) at 'BBB-'. The Rating Outlook is Stable.
Most notably, GM and the U.S. Department of Justice (DOJ) announced a three-year deferred prosecution agreement that calls for the company to pay a $900 million financial penalty. The agreement also requires the company to cooperate with the federal government and hire an independent monitor to oversee certain safety-related issues. If GM complies with the requirements, federal prosecutors will seek to have the charges dropped in three years.
The amount of the financial penalty is significantly lower than Fitch had previously estimated. In June 2015, when Fitch upgraded GM's IDR to 'BBB-' from 'BB+', Fitch noted that it expected the financial penalty to fall in the $1 billion-$2 billion range or potentially higher. Fitch believes the lower than expected figure credits the company for the proactive initiatives it undertook to compensate victims injured as a result of the faulty ignition switches.
In addition to the DOJ agreement, GM announced two other settlements totaling $575 million. One settles a shareholder class action case and the other settles over one-half of the various personal injury claims that were outstanding in various lawsuits, including the multidistrict litigation case. Combined with the recent completion of the victim compensation program that had been administered by Kenneth Feinberg, GM has now resolved a substantial number of the personal injury claims that had been tied to the ignition switch recall.
As part of its analysis that led to the upgrade of GM's ratings, Fitch assumed there would be other legal settlements in addition to the DOJ penalty. The $575 million figure falls within the range that Fitch had assumed, although the timing of the settlements is sooner than expected. Nonetheless, GM's liquidity position remains more than sufficient to cover this expense. As of June 30, 2015, GM had nearly $23 billion in automotive cash, cash equivalents, and marketable securities.
There are still a number of recall-related lawsuits outstanding against GM, including suits alleging economic losses due to declining vehicle values. The company disputes those economic loss claims and Fitch continues to believe that it could be at least several years before those cases are resolved.
Комментарии