General Motors has secured a US$5bn credit facility, returning to the capital markets a year after emerging from bankruptcy.
GM now plans to file an IPO registration tomorrow (13 August, 2010), one day after it reports what is widely expected to be a second consecutive quarterly profit, US media reported, citing several unnamed sources.
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Banks including Bank of America, Morgan Stanley and JP Morgan committed up to $500 million a piece to the credit line, these people said.
According to a Wall Street Journal (WSJ) source, 10 banks are contributing to the credit facility, but there is a chance more could sign on as demand for the loan was high. The facility would likely remain at $5bn but the individual amounts could drop, the source said.
Securing the bank credit means GM has cleared one hurdle on the way towards an initial public offering of stock expected to make the US government a minority shareholder and hand the Obama administration an important political win against critics of its $50bn taxpayer funded bailout of the automaker, Reuters noted.
The GM IPO, expected to be the largest ever for the US market and an unprecedented privatisation of an American household name company, is likely before the US Thanksgiving holiday [in November], one source said.
White House auto task force chief Ron Bloom and GM executives have said they expect an offering before the end of the year but have denied that the timing would be tied in any way to early November Congressional elections.
GM chairman and CEO Ed Whitacre said last week that he would participate in a roadshow intended to drum up investor interest in the stock offering in the coming weeks.
Chief financial officer Chris Liddell, who joined GM from Microsoft earlier this year, has been the point person on the automaker’s outreach to potential creditors and investors, sources involved in the process have said.
The automaker and White House officials have repeatedly said that they expect to complete a stock offering by year’s end.
The now completed GM credit facility includes tiered levels of commitments from Wall Street’s largest banks, a source said.
Major US banks including Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase & Co and Morgan Stanley have each committed $500m, the source added.
GM will use the revolving credit facility to fund its operating needs.
US media has said GM’s IPO is expected to be the biggest US IPO since Visa’s $19.7bn offering in March 2008.
GM executives have said that they wanted to reestablish the company with Wall Street by first securing a revolving credit facility with banks before targeting a larger pool of investors for a stock offering.
In its IPO filing GM will indicate a nominal amount of equity to be offered in order to file the necessary paperwork with the US Securities and Exchange Commission, a source said.
In practice, GM and its financial advisors are likely to start to try to sell about $10bn in equity and then work toward a higher figure depending on investor interest and market conditions, the person involved in the process said.
Ultimately, the amount to be sold in the IPO is likely to represent at least a quarter of the company’s equity, the source said.
The US Treasury plans to offer shares in the same proportion as other holders, including the government of Canada, the province of Ontario and a health care trust aligned with the United Auto Workers Union, sources have said.
That could leave the US government with a minority stake in the automaker and allow GM to distance itself from the mocking label applied by some critics – ‘Government Motors’.
GM chairman Ed Whitacre has been pushing for the treasury to offload as large a stake in the company as possible in an effort to shed the stigma of being owned by the government. Only last week he told reporters he wanted the government out of the business entirely and was frustrated with the ‘Government Motors’ label critics use.
Some observers have suggested consumers have ‘punished’ GM by refusing to buy cars from an automaker bailed out with taxpayers’ funds. However, Jeremy Anwyl, CEO of buyers guide Edmunds.com, said in a recent blog: “[Whitacre] may have a point about the negative association of GM and last year’s bailout, this is unlikely to have a real impact on sales. Most car buyers don’t directly connect Chevrolet with GM. (Shocking, I know.)”
The Obama administration has been consulted as preparation for the IPO has proceeded, a Reuters source said.
Bloom, the auto task force chief, and Herb Allison, the former [government owned mortgage provider] Fannie Mae chief executive officer who now oversees the Troubled Asset Relief Program, have been consulted on questions of how the stock sale should be handled in terms of access to the offering by retail investors and maximising returns for taxpayers, the source said.
A WSJ source said the treasury was expected to opt for a sale of at least $10bn of its shares in the company, but the initial amount remained in question.
Its sources noted that the treasury was also taking a more conservative approach to the size of the first sale of shares, looking to avoid diluting the value by putting out too many at once.
GM is today expected to report a second quarter profit in excess of $1bn, the company’s strongest performance since at least the second quarter of 2004, the WSJ said.
A second consecutive quarterly profit by would mark a turning point for GM, which essentially stopped making money from 2005 through 2009 and has been living off the auto bailout since then, the paper noted.
