General Motors Co. is in talks with banks to raise a new $2 billion loan to increase liquidity, while fighting a continuing drop in consumer demand caused by the coronavirus pandemic, according to people familiar with the affair.
The loan is structured as a 364-day revolving line of credit and is a precautionary measure to increase the company’s liquidity, said the people, who asked not to be named due to the confidentiality of the matter.
“During these uncertain times, we continue to evaluate various options to improve liquidity and will act with caution,” a spokesman for General Motors said in an emailed statement.
JPMorgan Chase & Co, which is leading the deal, declined to comment.
The auto manufacturing giant recently took “significant austerity measures” to preserve available cash in the short term, including the suspension of dividends and share buybacks. The demand for new cars has decreased as people stay at home to stop the spread of the coronavirus.
General Motors is expected to release its first quarter results today and share its terms of the new loan.
The margin on the new loan was set at 250 basis points over the London interbank rate, which includes a commission of 50 basis points, people familiar with the transaction said. That’s significantly higher than the 175-basis-point margin over Libor from a one-year line of credit that the company recently refinanced. The new loan also includes a down payment of 50 basis points that the company will have to pay banks when closing the deal.
The new agreement includes a clause to prevent the company from hoarding cash and can only withdraw the loan if General Motors’ cash balance falls below $ 15 billion. This clause is atypical in the investment-grade loan market and began to emerge as banks have been able to demand safer and more favorable terms for the first time since the 2008 crisis.
General Motors’ unsecured debt is rated Baa3 by Moody’s Investors Service, the lowest investment grade tier. The company is rated BBB by S&P Global Ratings and Fitch Ratings, two levels above garbage.