General Motors Company today announced that GM Canada now has the legal approvals to establish an independent Canadian Healthcare Trust (HCT), which will administer retiree healthcare benefits going forward for Canadian Auto Workers (CAW) employees and retirees as of 8 June 2009.
The so called HCT that GM Canada and the CAW agreed to in June 2009 became effective 31 October 2011. This trust is virtually identical to the United Auto Workers Voluntary Employee Benefits (VEBA) Trust put in place in the United States in December 2009.
This means that GM Canada is free from any obligations associated with the cost of providing retiree healthcare benefits for eligible CAW represented retirees, surviving spouses and dependents. In exchange, GM Canada will transfer C$0.8 billion in cash and issue C$1.1 billion of notes to the HCT.
In its Q2 earnings GM had obligations of $4.7 billion in debt, $5.5 billion in preferred stock (U.S. government owns 26.5% of GM), $10.8 billion in unfunded pensions, and $10 billion in other post-retirement employee benefits. It’s not clear how GM is going to fund these. It looks like issuing more common stock is not feasible given current share price of ~$24, far below the IPO price of $33 and its high of $39.48. GM will report Q3 earnings tomorrow.
“The new healthcare trust is another step forward as we work to de-risk (sic) and strengthen our balance sheet and position the company for sustainable profitability,” said Dan Ammann, GM senior vice president and chief financial officer.
GM will account for the HCT as a plan settlement and expects to reduce its post-employment liabilities by approximately C$3 billion. GM will record an accounting gain associated with the HCT actions of approximately US$0.8 billion in the fourth quarter of 2011. Further details on the HCT will be in the company’s latest Form 10-Q filing which is expected to be filed with the Securities and Exchange Commission later this week.
