Moody's Says Einhorn's Dual-class Stock Proposal For GM Is Credit Negative

Moody's Investors Service said Tuesday a proposal from hedge fund billionaire David Einhorn's Greenlight Capital that General Motors Co. adopt a dual-class stock structure is a credit negative for the car maker and its subsidiaries. "If adopted, the proposal would represent a significant departure from the company's current financial strategy," the rating agency wrote in a statement. "This well-defined and publicly-communicated strategy was an important element in the recent upgrade of GM's ratings." Earlier, GM rejected the proposal, which in effect, would eliminate the dividend on the existing common stock. Moody's said the move would reduce GM's financial flexibility and raise credit risk. "The creation of a perpetual, cumulative dividend in excess of $2.2 billion would saddle GM with a sizable and largely inflexible cash outflow burden," the agency wrote. GM's most active bonds, the 4.350% notes due January of 2027, were trading at 101 cents on the dollar, according to MarketAxess. GM shares were up 2.8% but have gained just 2.5% in the year so far, while the S&P 500 has gained 5%.

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