General Motors hopes the proceeds of its massive $US13.2 billion debt offering will put problems with its under-funded US pension plan behind it, a spokeswoman told Reuters.
“We’ve become the poster child for pension plans. Our intention is to put this issue behind us,” GM spokeswoman Toni Simonetti said, according to the news agency.
Citing Simonetti, Reuters said GM would use almost all the proceeds from the $13.2 billion debt offering, completed late on Thursday, to fund its pension and health care benefit plans.
The news agency noted that GM’s finance unit, General Motors Acceptance Corporation, also issued $4.4 billion of bonds on Thursday, for a total of $17.6 billion, making it the largest corporate debt offering ever, and added that GMAC would use its proceeds for ongoing operations.
According to Reuters, GM’s pension plan ended last year under funded by about $19.3 billion, due to three successive years of stock market declines and lower interest rates. GM spent $3.4 billion last year on health care for retired hourly workers and their families — costs that have been growing rapidly in recent years, the news agency noted.
Reuters said GM has been selling off non-core assets, and diverting cash and stock in its Hughes Electronics Corporation unit to its pension and retiree health care plan to try to plug the hole.
This year, Reuters added, GM said it would likely use a portion of the $3.8 billion proceeds from the expected sale of its stake in Hughes Electronics to Rupert Murdoch’s News Corporation for its US pension plans.
Stock market gains this year have boosted the assets in the US pension plans by about 9%, Reuters said, but that has been offset by lower interest rates. Several Wall Street analysts reportedly said before last week’s debt offering that GM’s pension deficit could grow larger, the news agency added, while major bond rating agencies have also downgraded GM’s debt ratings due to the mounting pension and health care obligations.
“Clearly our intention is to fund our US pension plans and retirement benefit plans,” Simonetti told Reuters. “We will use significantly all of these proceeds (from the debt offering) to fund these plans.”
According to Reuters, Simonetti also said that GM has the option to issue as much as $600 million more of its convertible bonds, and added that she expected a decision on that to be made within days.
GM expects to contribute funds from the debt offering to its pension plans and health care funds by the end of the year, Simonetti added, according to the Reuters report.
