The automaker posted a $4.2 billion loss for the third quarter on Friday and said it would cut white-collar jobs and slash next year's capital spending budget by $2.5 billion to try to cope with a sharp sales slowdown. For details, see
In spite of this bad news, JPMorgan analysts rate GM's bonds a "buy."
'We believe GM has several sources of liquidity it can access to bridge the company to 2010 when it realizes considerable cost cuts,' analysts Eric Selle and Atiba Edwards said in a report.
These include an overfunded pension plan, possible asset sales, capital market transactions, equity injections, cost cutting and government loans, they said.
GM's benchmark 8.375 percent bond due 2033 has dropped to 25.75 cents on the dollar, from 36.5 cents at the end of October, according to MarketAxess. The bonds had traded at more than 80 cents on the dollar at the beginning of the year and currently yield 32.5 percent.
The automaker's credit default swaps are also trading at extremely distressed prices, costing 68.5 percent the sum insured as an upfront cost, plus 5 percent in annual premiums for five years, according to Markit.
That means it costs $6.85 million to insure $10 million in debt for five years, plus $500,000 annually.
"We view the upside (driven by stabilization of U.S. sales volumes and liquidity enhancement measures) on the bonds as much higher and more likely than the downside of a potential bankruptcy," JPMorgan said.
"GM's recent product successes (award-winning styling, performance and quality) and its considerable international profitability give us confidence they can become profitable in North America selling cars," they added.