GM Announces Actions to Reduce Leverage by $11 Billion
Actions expected to reduce net interest cost and preferred dividends by $0.5
billion per year
2010-10-28
DETROIT, Mich. – General Motors Company today announced a series of actions
to further reduce financial leverage.
gThese actions will bring down our leverage by $11 billion by reducing debt
and improving our pension funding position,h 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 GMfs 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 GMfs 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
GMfs 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
GMfs U.S. dealers pursuant to wholesale financing arrangements. Under such
arrangements, GM's U.S. 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 $2
billion increase to GMfs 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.
gCompletion of these actions will enable us to reduce net interest cost and
preferred dividends by $0.5 billion per year,h said Dan Ammann, GM vice
president of finance and treasurer. gAs importantly, we will have
approximately $24 billion of total liquidity as of June 30, 2010 pro forma for
these actions, our AmeriCredit acquisition, and excluding any public offering
proceeds.h
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Forward-Looking Statements
In this press release and in related comments by our management, our use
of the words gexpect,h ganticipate,h gpossible,h gpotential,h gtarget,h
gbelieve,h gcommit,h gintend,h gcontinue,h gmay,h gwould,h gcould,h gshould,h
gproject,h gprojected,h gpositionedh or similar expressions is intended to
identify forward-looking statements that represent our current judgment about
possible future events. We believe these judgments are reasonable, but these
statements are not guarantees of any events or financial results, and our actual
results may differ materially due to a variety of important factors. Among other
items, such factors might include: our ability to realize production
efficiencies and to achieve reductions in costs as a result of our restructuring
initiatives and labor modifications; our ability to maintain quality control
over our vehicles and avoid material vehicle recalls; our ability to maintain
adequate liquidity and financing sources and an appropriate level of
debt, including as required to fund our planning significant investment in new
technology; our ability to realize successful vehicle applications of new
technology; and our ability to continue to attract new customers, particularly
for our new products.
GM's most recent annual report on Form 10-K and quarterly report on Form
10-Q provides information about these and other factors, which we may revise or
supplement in future reports to the SEC.