GM to repay taxpayers $2.1b as it prepares for IPO
In a series of moves that pave the way for an IPO and strengthen its finances, General Motors Co GM.UL said on Thursday it would repay $2.1 billion to U.S. taxpayers and make early payments to pension and retiree health plans.
The announcement comes just days before bankers are expected to begin a road show for potential investors in an initial public offering that would allow the U.S. government to start to reduce its stake in the top U.S. automaker.
GM said that after its IPO it would contribute at least $4 billion in cash and $2 billion of common stock to a pension fund for U.S. hourly and salaried workers and buy back the preferred shares at a 2 percent premium. GM has repaid a $2.8 billion note provided to the United Auto Workers union’s retiree healthcare trust.
Overall, those actions take $11 billion off GM’s balance sheet and cut its payments for net interest and preferred dividends by $500 million per year, GM said. GM has been paying 9 percent in dividends or interest on the preferred shares and UAW note.
Separately, GM said it had reached an agreement with banks for a $5 billion credit facility the automaker has said was needed before it could complete an IPO.
The 10 major banks underwriting GM’s IPO have committed $375 million each to the credit line and about 10 other banks have been added in to draw global investors, people familiar with the matter said.
Industrial and Commercial Bank of China (ICBC), Bank of New York Mellon, Commerzbank AG (CBKG.DE) and Canadian Imperial Bank of Commerce are among the banks that newly joined the credit line, one of the people said.
Citi and Bank of America Merrill Lynch led the credit line. Barclays Capital, Deutsche Bank, Goldman Sachs Group, JPMorgan Chase, Morgan Stanley, Royal Bank of Canada, UBS and Credit Suisse are the other major banks on the credit line.
GM said it intended to treat the five-year credit facility as a “source of backup liquidity” and leave it mostly undrawn.
The actions move GM a step closer to a full payback of the $49.5 billion U.S. taxpayer bailout of the company and marked the most significant action it has taken since Dan Akerson became CEO in September.
The U.S. Treasury said GM will have returned $9.5 billion to taxpayers after the company buys the preferred shares. Those repayments include $6.7 billion of debt, the $2.1 billion for preferred shares and $700 million in interest and dividends, it said.
That leaves the U.S. government’s $40 billion investment in 60.8 percent of GM common stock as the last remaining portion of taxpayer funding from the bailout.
In a speech at a GM plant in Lansing, Michigan, earlier on Thursday, Akerson vowed that the automaker would do its “level best” to repay American taxpayers.
“It’s up to people like you and me, the burden we share, that we deliver on the promise and return the investment to the American taxpayers,” Akerson told workers at a plant that builds Cadillac cars.
“We are going to do our level best to make that happen, and we will only do that by expanding our industrial base and entering new markets and being a better competitor,” he said.
Akerson declined to comment on when GM might begin the road show or release its third quarter financial results.
GM’s roughly $27 billion shortfall in pension funding, which was left untouched in its fast-track bankruptcy, had been cited as a concern for potential investors in the IPO.
The GM repayment of the $2.8 billion secured note to the UAW health care trust, known as the VEBA, follows Ford Motor Co’s announcement that it would repay a $3.6 billion debt to the VEBA in cash on Friday.