• Oct 28th 2010 at 3:28PM
  • 21
General Motors has just announced a series of actions intended to improve its financial position and make it more attractive to investors ahead of its Initial Public Offering. Perhaps the most intriguing is word that it plans to purchase $2.1 billion of Preferred Stock from the United Stated Department of the Treasury at a sum that is $700 million more than the recorded value of those stocks.

In addition, GM will:
  • Contribute at least $4 billion in cash and $2 billion in GM common stock to its U.S. hourly and salaried pension plans
  • Repay the $2.8 billion outstanding loan to the United Auto Workers Retiree Medical Benefits Trust
  • Complete a $5 billion revolving line of credit
  • Save $500 million per year by restructuring its payment deals on vehicles in transit to dealers
The official press release, which can be found after the jump, breaks each of these actions down using appropriately difficult to decipher language designed specifically to make your head explode... but you're free to check it all out all the same.

[Source: General Motors | Image: Associated Press/Paul Sancya]
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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

DETROIT, Mich. – General Motors Company today announced a series of actions to further reduce financial leverage.

"These actions will bring down our leverage by $11 billion by reducing debt and improving our pension funding position," 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 GM's 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 GM's 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 GM's 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 GM's 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 GM's 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.

"Completion of these actions will enable us to reduce net interest cost and preferred dividends by $0.5 billion per year," said Dan Ammann, GM vice president of finance and treasurer. "As 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."

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    • 1 Second Ago
      • 4 Years Ago
      Preferred stock is called preferred for a reason. For example, if you decide to skip a dividend payment with preferred stock, that dividend accrues until you pay the whole amount. And you can’t pay a dividend to common stockholders until you are up to date on the preferred.
      • 4 Years Ago
      If I had paid my taxes with a credit card, I would seriously consider contesting the charge
        • 4 Years Ago
        I'd say more along the lines of plain ol' bitterness, but whatever works
      • 4 Years Ago
      They're doing all this yet they still insist on making crappy cars. Go figure.
        • 4 Years Ago

        When was the last time you drove a new car, from any manufacturer? Now, the same question only add "for more than five minutes" at the end.

        Get a grip.
        • 4 Years Ago
        They are making better and better cars actually. Stop living in the 80s and wake up to a new reality. I applaud GM doing whatever it takes to make their stocks more attractive and paying back the tax payer.
      • 4 Years Ago
      Have any of you ever participated in the negotiations and advice that occurs between a company and the underwriters. My guess is that all of this information and actions are as a direct result of those negotiations/advice. The underwriter wants as clean a product to sell as can be reasonably generated. This is all good for the IPO.
      Now, can't you died in the wool leftists and rightists just shut up. Leave your politics in your rest rooms, and be sure to wash your hands before making any further attempts at comments. This is about cars, not your besmirched and crushed egos.
      • 4 Years Ago
      $700 million more you say? Seems like the taxpayer is going to make a tidy profit on that portion of the investment. And in less than two years time.

      That of course doesn't speak to the overall bailout but it has to be considered a good sign. Not that this will stop "the usual suspects" from screaming about "Government Motors" this and "socialist" that. With a side of "Obama sucks" for good measure.
        • 4 Years Ago
        Perhaps you should calculate that "drop in the bucket" in percentage terms, and then compare it to current interest rates and rates of return in the stock market over the last two years before dismissing this so casually.

        • 4 Years Ago
        No offense, but that is just a drop in the bucket. It merely is the cost of PR these days.

      • 4 Years Ago
      Why would you take a chance with a company that has already socked their stock holders with zero value from bankruptcy. And, now they are giving away the value of the company before they even conduct their IPO. Talking about speculation...here you have it in spades. If you buy GM stock, dump it as fast as you can after the IPO because that's when the bankers will dump it. Don't hold it and expect it to rise right away. Watch and learn.
      • 4 Years Ago
      Of course it'll be really complicated to read. It wasn't written to be understood by the general public(read:sheep). Its all to hide the money that will never be paid back. Its probably all just a scheme to get more money for black budget projects and hide the real alien tech(energy sources) that could power a car for a lifetime but denied from the public because of all the money that would be "loss" on oil and batterys.
        • 4 Years Ago
        ...and that's why it pays to finish up your education with a high school diploma (you know, reading comprehension). It doesn't take anything special to read something like a 10-Q (or 10-K) filing. A quick trip out to EDGAR will show you that basic literacy is all that's required to read SEC filings.
        • 4 Years Ago
        Are you saying the reason you don't get what he's getting at is because you typically function at the level of a sheep?
        • 4 Years Ago
        You are complaining a press release will be too hard to read.

        • 4 Years Ago
        But then you come out with "sheep" -- like people aren't *allowed* to benefit from simpler language?
        • 4 Years Ago
        Yeah, but I hear that alien technology is really heavy, and comes standard with GPS and power windows. You wouldn't be interested.
      • 4 Years Ago
      • 4 Years Ago
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