G.M. Moves to Clean Up Its Books Before I.P.O.
By NICK BUNKLEY
New York Times
October 28, 2010
DETROIT — Preparing for its highly anticipated public offering, General Motors said on Thursday that it would repurchase $2.1 billion in preferred stock held by the federal government, contribute at least $6 billion to its pension plans and pay down debt to a health care fund for union retirees.
G.M. said it had also completed negotiations with banks on a $5 billion revolving credit line that would serve as a backup source of liquidity.
After the stock buyback, G.M. will have repaid $9.5 billion of the $49.5 billion that it received from the government in connection with the automaker’s bankruptcy protection last year, the Treasury Department said. G.M. said the latest payments would be made from money in its cash reserves, which stood at $26.8 billion as of June 30.
“These actions will bring down our leverage by $11 billion by reducing debt and improving our pension funding position,” Chris Liddell, G.M.’s vice chairman and chief financial officer, said in a statement.
G.M. said it expected to save $500 million a year in interest and dividends as a result. Earlier this week, the Ford Motor Company, which did not eliminate any debt in a bankruptcy filing as G.M. and Chrysler did, said its debt reduction actions in 2010 would reduce interest expenses by $800 million.
The Treasury said it had accepted a deal under which G.M. would pay $25.50 — 2 percent above the liquidation value — for the government’s 83.9 million preferred G.M. shares. In addition, the Treasury owns 61 percent of G.M.’s common stock, a portion of which will be sold in the public offering.
The Treasury received the preferred and common shares in exchange for the majority of G.M.’s government debt.
The common shares not included in the initial offering are expected to be sold gradually, over several years. The government has forecasted that it will recoup most, but probably not all, of its investment in G.M.
G.M. plans to initiate the preferred-share buyback on the first dividend payment date after the public offering.
The pension contribution, to be made after the public offering is completed, will include at least $4 billion in cash and $2 billion in common stock.
G.M. said it would pay $2.8 billion that it owed to the United Automobile Workers union’s health care trust, which covers benefit costs for hundreds of thousands of retirees and their dependents.
Separately, G.M. revealed plans Thursday to create 600 jobs by investing $190 million in an assembly plant in Lansing, Mich. The retooled, nine-year-old plant will build a small car for G.M.’s Cadillac luxury brand.
G.M. said it has invested more than $3.1 billion to create or retain more than 7,900 jobs at 21 plants in the United States since emerging from bankruptcy in July 2009.
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