General Motors announced several serious house cleaning measures on Thursday designed to shed $11 billion in debt so that the automaker looks a lot better when it shops itself around next month to Wall Street investors.
The automaker said it not only nabbed a $5-billion line of credit from major banks, but also said it would pay off a portion of its debt to the U.S. government as well as a chunk of its retirees' pension obligations.
Analysts said the actions will make GM's balance sheet look better as it prepares to sell shares of its stock to the public next month and reduce the U.S. government's ownership stake.
"This is obviously clean-up time before the IPO," said Mirko Mikelic, senior portfolio manager at Fifth Third Asset Management in Grand Rapids.
Standard & Poor's credit analyst Robert Schultz said the $5-billion credit line shows that banks have confidence in GM's situation.
In addition to the line of credit, GM also said it:
? Paid $2.8 billion to the UAW Retiree Medical Benefits Trust.
? Plans to buy $2.1 billion of the preferred stock held by the U.S. Department of Treasury.
? Plans to contribute $4 billion in cash and $2 billion in common stock to GM's hourly and salaried pension plans.
The actions will help the objectives of Chris Liddell, GM's vice chairman and chief financial officer, to reduce debt and secure an investment-grade credit rating.
Including the payment to the UAW trust fund, GM's total debt is now about $5.3 billion. On June 30, GM's pension obligations were underfunded by $26.4 billion.
Ford, which announced its own aggressive efforts to pay off portions of its debt this week, will have total debt of $22.8 billion after it makes a $3.6-billion payment to the UAW Retiree Medical Benefits Trust today. Ford's pensions were underfunded by $12 billion at the end of 2009.
Standard & Poor's has a B+ rating on Ford's debt, which is a lower rating than the BB- it has on GM.
Even though GM's decision to repurchase the preferred shares from the U.S. Treasury won't reduce the government's 60.8% stake in GM, it does reduce the total amount owed to taxpayers.
In 2008 and 2009, the U.S. Treasury invested a total of $49.5billion in GM to prevent its collapse and aid its restructuring through bankruptcy.
After GM completes the repurchase of preferred stock from Treasury, taxpayers will have received a total of $9.5 billion back from GM, the Treasury Department said in a statement, and will have about $40 billion remaining in unpaid debt.
Under GM's agreement with the U.S. Treasury, GM will purchase 83.9 million shares of preferred stock at $25.50 per share, or 102% of the estimated value. The transaction is expected to close after GM's public stock offering, which is expected in mid-November.
Contact Brent Snavely: 313-222-6512 or bsnavely@freepress.com. Free Press writers Chrissie Thompson and Todd Spangler contributed to this report.
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