(Source: Business Wire)Recovery prospects appear low for GM bondholders, although according to Fitch Ratings, ultimate recoveries remain highly uncertain, as unsecured creditors will receive equity in the new GM, the value of which will be driven largely by the success of restructuring efforts in the company's North American operations. Fitch has downgraded the Issuer Default Rating (IDR) of General Motors to 'D' from 'C' following the company's Chapter 11 bankruptcy filing. The company's senior secured bank loans remain at 'CCC/RR1', indicating that full recovery is expected. The company's senior unsecured debt is downgraded to 'C/RR6', indicating recoveries are expected to be in the range of 0%-10%.

Current asset valuations are derived primarily from GM's Asian operations in Korea and China, as well as its Latin American operations. Also affecting recoveries will be the company's post-bankruptcy capital structure, which remains uncertain, and the level of new unsecured claims that arise through the bankruptcy process. The role of the government will be material in shaping the resolution of claims in bankruptcy, and a relatively small shift in recoveries could shift unsecured creditor recoveries into the 'RR5' category (10%-30%). A list of affected ratings is detailed below.

Fitch expects to re-rate the company upon emergence, although it is viewed as unlikely that the IDR will be higher than 'CCC'. Even with a successful navigation of the bankruptcy process, GM is likely to emerge with a leveraged capital structure (including pension and OPEB-related liabilities) and limited near-term free cashflow prospects. General Motors still faces several years of restructuring and product/brand realignment to reshape its manufacturing footprint and product offerings into a viable, long-term competitor across North American product segments. Even with significant changes to GM's cost-structure, it will remain challenging to introduce products with the technology, styling and brand strength to achieve margins that are sufficient to meet high capital requirements and liability obligations. The global consumer reaction to GM's bankruptcy, in terms of sales performance, also poses risk to the company's operations during the bankruptcy process and could have an impact on ultimate recovery prospects.

The progression of industry technologies - including fuel efficiency, emission and safety standards - as well as higher regulatory burdens, will continue to raise capital requirements and the cost of capital for the industry, particularly for weaker players.