Today, General Motors has announced that it will drawdown roughly $16 billion from its revolving credit facilities. In a press release, the Detroit-based automaker describes the move as a proactive measure to “fortify its balance sheet” and increase its “cash position and preserve financial flexibility in light of current uncertainty in global markets resulting from the COVID-19 pandemic.”
The $16 billion announced for draw today will supplement between $15 and $16 billion in cash that GM expects to have on hand at the end of March.
“We are aggressively pursuing austerity measures to preserve cash and are taking necessary steps in this changing and uncertain environment to manage our liquidity, ensure the ongoing viability of our operations and protect our customers and stakeholders,” said Mary Barra, GM chairman and CEO. “Over the past several years, we have made necessary, strategic decisions and structural changes that have transformed the company and strengthened the business, better positioning us for downturns.”
The $16 billion credit facility being drawn by GM was established in April 2018. The unsecured line of credit, referred to as a revolving credit facility in banker speak, totals $16.5 billion and consists of three facilities, as follows:
- $10.5 billion, 5-year facility
- $4.0 billion, 3-year facility
- $2.0 billion 364-day facility
The $2.0 billion, 364-day line was the last to be added to GM’s credit line, extending the previous line of $14.5 billion.
What’s more, GM announced that its captive finance arm, GM Financial (GMF), “has strong liquidity and capitalization,” and therefore does not need any capital markets activity in the near-term. The division had $24 billion of liquidity at the end of 2019 and expects to end the first quarter of 2020 with similar levels of liquidity. The liquidity level of GM Financial is set up to “support at least six months of cash needs, including new originations, without access to capital markets.” Currently, GM Financial is managing below its target leverage ratios.
In that regard, GM Financial does not need incremental support from its parent. In addition, GMF continues in a position where it can pay dividends to its parent, paying $400 million in the first quarter of 2020 and expects to be able to pay the same amount for the second quarter.
“GM Financial has prepared for times like this by maintaining a strong financial position and ready access to cash. We are confident that we will be able to navigate the challenges created by this environment without capital from GM,” said Dan Berce, GM Financial president and CEO.