S&P drops GM, GM Canada

Standard & Poor's said it has lowered its issue-level ratings on the unsecured debt of General Motors Co. and General Motors of Canada Ltd. to C from CC.

At the same time, the agency said it revised its recovery rating on GM's debt to six from 4, indicating that lenders can expect to receive negligible recovery in the event of a payment default.

The rating actions reflect GM's planned receipt of up to $13.4 billion of U.S. government loans, plus another about $2.5 billion from the Canadian and Ontario governments, the agency said.

In addition, Germany and Sweden have signaled that they may make loans to GM units in those countries, which would further diminish the value to unsecured creditors of the equity in foreign subsidiaries, S&P added.

"We expect these U.S. and Canadian government loans to be backed by a security package that includes currently unencumbered assets, which would lead to a significant decrease in value for unsecured debtholders in the event of a bankruptcy or payment default," said S&P credit analyst Robert Schulz.

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