General Motors is releasing all kinds of good news today (more to come later). The Detroit automaker announced that it is buying back all of the Treasury Department’s $2.1 billion in preferred stock – a part of a series of actions to reduce financial leverage.
“These actions will bring down our leverage by $11 billion by reducing debt and improving our pension funding position,” said Chris Liddell, GM vice chairman and chief financial officer.
GM has implemented the following capital structure actions:
- Repayment of $2.8 billion outstanding on the 9 percent secured note provided to the UAW Retiree Medical Benefits Trust. The company will record a $0.2 billion non-cash gain in the fourth quarter of 2010 related to this early extinguishment of debt.
- Completion of a $5 billion, 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 the following capital actions, conditional upon completion of GM”s public offering:
- Purchase of the $2.1 billion of 9 percent Series A Preferred Stock held by the United States Department of the Treasury at a price equal to 102 percent of the $2.1 billion liquidation amount. The company will record a $0.7 billion charge to net income attributable to common stockholders for the difference between the purchase price and the recorded value of the Series A Preferred Stock.
- A contribution of at least $4 billion in cash and $2 billion in GM common stock to GM”s U.S. 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.
Along with the actions outlined above and the completion of the public offering, GM expects to get rid of a wholesale advance agreement which provides for accelerated receipt of payments made by a financial institution on behalf of GM”s U.S. dealers pursuant to wholesale financing arrangements. Similar steps will be taken in Canada.
– By: Omar Rana