Moody's suggests GM's buyback plan may cost the maker more than $5 billion.

The cost of General Motors’ just-announced share-buyback is likely going to be steeper than $5 billion it’ll spend on the stock due to a ripple effect that could end up hurting the company’s credit rating.

The multibillion-dollar share repurchase was hastened by an effort by Harry Wilson, a former member of the Obama administration’s automotive task force, and several hedge fund investors, to force the automaker to buy back $8 billion in shares, although the current was apparently enough to win them over. As part of the deal, Wilson agreed to drop his campaign for a seat on GM’s board of directors.

Moody’s Investors Service said that GM’s ratings are unchanged following the company’s announcement that its board approved a new capital allocation strategy. But the strategy approved by the board weakens GM’s overall financial position and could lead to higher borrowing costs in the future.

“This strategy will include: a $5 billion share repurchase program to be completed by the end of 2016, a dividend policy that should amount to $5 billion for 2015 through 2016, and a $20 billion targeted cash position,” Moody’s noted in a comment issued after GM’s announcement of the settlement.

Although GM’s ratings and stable outlook are unchanged by the capital allocation program, the initiative represents a negative credit development. Bruce Clark, senior vice president, Moody’s, said, “This program weakens GM’s positioning at the current rating level and will likely delay any potential consideration for an upgrade.”

Higher ratings are important to GM because of the significant ongoing borrowing requirements of its captive finance operation – GM Financial, he added. Clark also noted that rewarding shareholders with $5 billion may prove to be problematic when it comes to negotiating with the UAW this fall. GM’s contract with the union expires in September.

(GM buying back $5 bil in shares. For more, Click Here.)

Moody’s raised its evaluation of GM’s credit to investment grade in the autumn of 2013. Standard & Poor’s raised GM’s rating to investment grade in October 2014, leaving Fitch as the only major ratings agency that has not given GM an investment-grade rating.

(Click Here for details about Wilson’s original buyback plan.)

Higher credit ratings reduce a company’s borrowing costs by lowering the interest rate on bonds or other debt instruments.

(To see more about Wilson’s desire for a seat on the GM board, Click Here.)

Since the company emerged from bankruptcy in 2009, GM’s management, mindful of the previous decade when its credit rating was steadily downgraded, has insisted that reaching and remaining at investment grade was one of its top priorities.