General Motors Company (NYSE: GM) announced today the pricing of three series of bonds that it will sell and use the $4.5 billion in proceeds to buy back stock from the UAW Retiree Medical Benefits Trust. The debt includes $1.5 billion of 3.5% notes due in 2018, $1.5 billion of 4.875% notes due in 2023 and $1.5 billion of 6.25% notes due in 2043.
GM said it would use $3.2 billion borrowed to repurchase 120 million shares of Series A Preferred Stock from the UAW VEBA. The shares have a liquidation preference of $25 per share and accrue cumulative dividends at a 9% annual rate. GM is paying a premium of $27 per share for each preferred share.
GM also plans to use $1.2 billion of the proceeds to prepay in full its 7% notes held by the Canadian Auto Workers’ Union Health Care Trust, which are due in periodic installments through 2018, including accrued interest.
“We’re taking advantage of a favorable market to lower our cost of capital, increase our financial flexibility and further strengthen our fortress balance sheet,” said Dan Ammann, GM executive vice president and CFO.
GM said it would take a charge of approximately $800 million in Q3 as a special item. As a result of getting out from the interest rate payments, these transactions will increase GM 2014 earnings by about $152 million or $0.11 per share. (See GM Earns $1.2 Billion in Q2 or 75 Cents a Share)
The VEBA currently holds 260 million shares of Preferred Stock, and Canada GEN Investment Corporation holds another 16 million shares. Until the ownership of these shares transfer back to GM or other independent buyers, the slur “Government Motors” still applies since these shares were part of a controversial – but effective – bankruptcy reorganization that Canadian and U.S. taxpayers subsidized in 2009. The U.S. Treasury Department has now diminished its stake in General Motors to 7.3%, and appears to be poised to end its direct ownership of the automaker, although it will likely lose $10 billion on the deal.
