General Motors’ (GM) massive Q2 loss has rekindled fears that the company is on its way to bankruptcy. Citigroup analyst Itay Michaeli thinks that at current burn rates, Citi can stay above its “liquidity threshold” until 2009, but would require external financing after that:
We now project a $7.5 billion H2 2008 cash burn driven by seasonal working capital outflows and higher North America losses, partially offset by expected labour savings and strength abroad. By our calculations, GM’s internal liquidity resources should maintain liquidity above management’s threshold through the end of 2008. This might entail GM drawing upon its entire revolver absent capital market or asset sales raises. In 2009, we estimate a $5.9 billion burn that will require external financing to maintain GM’s liquidity above its threshold, with debt maturities in the summer of 2009 serving as a key refinancing period.
We think Michaeli is also being too optimistic about GM’s international business. GM Europe barely broke even in Q2, and the euro-economy is about to follow the US into the tank.
Michaeli expects GM shares to trade on “liquidity steps” in the near term. Michaeli reiterates his Hold/Speculative rating and cuts his target from $14 to $12.
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