In the midst of a presidential election where the questionable dealings and the too cozy relationships with Wall Street of Donald Trump and Hillary Clinton are under fire for rigging the economy, General Motors now has a new deal with JPMorgan Chase Bank to increase its borrowing by $2 billion. JPMorgan Chase – a Too Big to Fail bank – opposes all efforts at the financial reforms needed to avoid another Great Recession.
It’s a classic example of banks lending money when the borrower doesn’t need it. This gives GM the liquidity to ride out another downturn such as the one that led to its bankruptcy, or increase its acquisitions of mobility companies such as Lyft, and/or fund the development of new products.
The GM deal, while perhaps unfortunate in timing, is a straightforward change to two existing revolving credit facilities that increases its borrowing capacity to $14.5 billion with JPMorgan Chase Bank as the administrative agent. Citibank, N.A. – also vehemently opposed to financial reform – is the syndication agent with 44 lenders involved.
Exec summary: GM and the big banks are amending and the $12.5 billion revolving credit facilities that GM entered into in October 2014. The deals consist of a $4.0 billion and $10.5 billion in borrowing, for three and five years respectively. The loans are unsecured and provide additional liquidity from GM’s current $12.5 billion line.
GM said that “subject to compliance with certain covenants, we can increase borrowing capacity under up to $18 billion, in the aggregate.” GM is required to maintain at least $4.0 billion in global liquidity and at least $2.0 billion in U.S. liquidity under the deal.
There is a catch though, one that stockholders should note: If GM fails to maintain an investment grade corporate rating from at least two of the following credit rating agencies: Fitch Ratings, Moody’s Investor Service and Standard & Poor’s, it will also be required to provide loan guarantees its subsidiaries.
These rating companies, of course, vetted billions of dollars of junk real estate mortgage paper as investment grade, which was a major contributor to the Great Recession.
