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Why General Motors Stock Is Rising Today

By John Rosevear – May 8, 2020 at 1:01PM

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GM is raising $4 billion to pad its balance sheet, at pretty good rates.

What happened

Shares of General Motors (GM 7.10%) were rising on Friday, after the company said that its $4 billion bond offering had been priced with moderate yields and that it will soon have a new $2 billion credit line available.

As of 12:45 p.m. EDT, GM's shares were up about 6.2% from Thursday's closing price.

So what

GM said that its offer of three series of unsecured bonds, which will raise $4 billion in total, was priced as follows on Thursday:

  • The first series, totaling $1 billion, will yield 5.4% and mature in 2023.
  • The second, totaling $2 billion, will yield 6.125% and mature in 2025.
  • The third, totaling $1 billion, will yield 6.80% and mature in 2027.

The yields on GM's new bonds are significantly below the yields on bonds issued by Ford Motor Company (F 6.41%) in April, which ranged from 8.5% on bonds maturing in 2023 to 9.625% on bonds maturing in 2030. 

Chevrolet Silverado HD pickup trucks move down the assembly line.

GM will begin reopening its U.S. factories on May 18, the automaker confirmed this week. Image source: General Motors.

The difference in yields (which are set as part of pricing the offering) reflects credit quality: Ford lost its investment-grade credit rating on March 26 after idling its U.S. plants and drawing down its lines of credit; GM, which made similar moves, has so far avoided a similar downgrade.

GM and Ford, like other automakers, have been burning cash at high rates since closing most of their factories in mid-March. 

Now what

GM also told auto investors that it expects to enter into a new revolving-credit agreement after the bond offerings close. That new credit line, which will also be unsecured, will add about $2 billion to the total funds that GM has available to borrow.  

As of March 31, GM had $32.1 billion in cash on hand and additional available credit lines totaling $1.4 billion. 

John Rosevear owns shares of Ford and General Motors. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

General Motors Company Stock Quote
General Motors Company
GM
$35.20 (7.10%) $2.33
Ford Motor Company Stock Quote
Ford Motor Company
F
$12.21 (6.41%) $0.73

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