General Motors Co., preparing for an initial public offering, plans to reduce its debt and other obligations by $11 billion, cutting interest costs and preferred dividends by $500 million a year.
The automaker said it has paid $2.8 billion to the United Auto Workers retiree health-care trust, according to a statement on the company’s website. It also will buy back $2.1 billion of preferred stock from the U.S. Treasury and contribute at least $6 billion in cash and stock to hourly and salaried pension funds after its IPO.
The automaker said it has also secured a $5 billion, five- year revolving credit facility with a syndicate of banks, which it expects to leave “generally undrawn.”
“They’re trying to clean up their balance sheet to get it as clean as possible before the IPO,” Rebecca Lindland, an analyst at IHS Automotive in Lexington, Massachusetts, said in a telephone interview.
GM has filed a registration statement with the Securities and Exchange Commission for an IPO. The U.S. shares will begin trading by Nov. 19, people familiar with the matter said.
“These actions will bring down our leverage by $11 billion by reducing debt and improving our pension funding position,” Chief Financial Officer Chris Liddell said in the statement.
GM will purchase the Treasury’s 83,898,305 series A shares at $25.50 per share, the Treasury said. GM will execute its purchase on the first dividend payment date scheduled to occur after the IPO.
With the repurchase, taxpayers will have received $9.5 billion in repayments, interest and dividends from GM since the automaker emerged from bankruptcy in July 2009, the Treasury said. The Treasury’s total funds invested in GM include $13.4 billion under the Bush administration and $36.1 billion under the Obama administration, the department said in the statement.
GM earned $2.6 billion in the first half. It hasn’t said when it will report third-quarter results.
GM’s commitment to pay down these obligations shows that its cash flow must be improving, said Joe Phillippi, principal of AutoTrends, a consulting firm in Short Hills, New Jersey. GM must expect to remain profitable, even while U.S. new-vehicle sales are running about 30 percent slower than the 16.8 million annual average from 2000 to 2007.
“We’re still not out of the woods with this car market,” Phillippi said. “If they weren’t showing strong cash flow, they wouldn’t take the risk.”
© Copyright 2023 Bloomberg News. All rights reserved.