GM reduces debt

GENERAL MOTORS has announced a US$2.1 billion (A$2.12 billion) debt reduction through the buy-back of stock from the United States government, at about US$700 million above their recorded value.

Announced in late-October – and reported as “a sweetener to investors” as GM prepares for its Initial Public Offering (IPO) as part of the latest round of “capital structure actions” – the American carmaker will also provide US$2.8 billion (A$2.83 billion) to the United Auto Workers union’s Retiree Medical Benefits Trust.

This action will save about US$200 million (A$202 million) in repayments over the term of a loan from the UAW.

GM has also secured a US$5 billion (A$5.05 billion) line of credit from an unnamed consortium of banks that it claims will probably not be drawn on.

On the completion of the IPO, the corporation said it will contribute “at least” US$4 billion (A$4.04 billion) in cash and US$2 billion in common stock to the workers’ pension plan, subject to clearance by the US Department of Labor.

Furthermore, GM revealed that it will cease a line of payments from a financial institution on behalf of its dealerships in the US and Canada that funds the inventory of vehicles purchased from GM while in transit to the yards, saving about US$500 million (A$505 million) in interest costs alone. “These actions will bring down our leverage by $11 billion (A$11.1 billion) by reducing debt and improving our pension funding position,” said GM vice-chairman and chief financial officer Chris Liddell.