General Motors has announced a series of actions to further reduce financial leverage. “These actions will bring down our leverage by $11bn by reducing debt and improving our pension funding position,” said CFO Chris Liddell in a statement.
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The automaker will repay $2.8bn outstanding on the 9% secured note provided to the UAW Retiree Medical Benefits Trust and book a $0.2bn non-cash gain in the fourth quarter of 2010 related to this early extinguishment of debt.
It will also complete a $5bn, five-year revolving credit facility with a syndicate of banks, which provides an additional source of backup liquidity. The facility is expected to remain generally undrawn.
GM expects to implement several capital actions, conditional upon completion of its public offering.
These include purchase of the $2.1bn of 9% Series A Preferred Stock held by the US Treasury at a price equal to 102% of the $2.1bn liquidation amount. The company will record a $0.7bn charge to net income attributable to common stockholders for the difference between the purchase price and the recorded value of the stock.
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By GlobalDataThe automaker will contribute at least $4bn in cash and $2bn in GM common stock to GM’s US hourly and salaried pension plans. The stock contribution is contingent upon Department of Labor review and the number of shares contributed would be determined based on the public offering price for GM’s common stock. The stock contribution will be valued as a plan asset for pension funding purposes at the time of contribution and for balance sheet purposes when the shares become fully transferable.
In addition to the above actions, and subject to completion of the public offering, GM expects to terminate a wholesale advance agreement which provides for accelerated receipt of payments made by a financial institution on behalf of GM’s US dealers pursuant to wholesale financing arrangements. Under such arrangements, GM’s US dealers borrow from financial institutions to fund their inventory of vehicles purchased from GM. Similar modifications will be made in Canada.
The wholesale advance agreements cover the period for which vehicles are in transit between assembly plants and dealerships. Upon termination, GM will no longer receive payments for vehicles purchased by the dealers in advance of the scheduled delivery date. This action will result in an estimated $2bn increase to GM’s accounts receivable balance, on average depending on sales volumes and certain other factors in the near term, and the related costs under the arrangements will be eliminated.
“Completion of these actions will enable us to reduce net interest cost and preferred dividends by $0.5bn per year,” said Dan Ammann, GM vice president of finance and treasurer. “As importantly, we will have approximately $24bn of total liquidity as of 30 June, 2010 pro forma for these actions, our AmeriCredit acquisition, and excluding any public offering proceeds.”
The Treasury said in a statement that, with the GM stock repurchase, taxpayers will have received a total of $9.5bn from GM through repayments, interest, and dividends, since the company emerged from bankruptcy in July 2009.
“Treasury’s total funds invested in GM include $13.4bn under the prior administration and $36.1bn under the current administration. After this repurchase, Treasury’s investment in GM will be limited to 60.8% of the company’s primary common equity, before giving effect to any sale of its shares in the initial public offering.”
