GM to sell $4.5B in notes to pay off debt to union trust funds

GM will also use $1.2 billion from the new bonds to pay off 7% notes, retiring debt held by a trust controlled by Unifor.

September 25, 2013   by The Canadian Press

DETROIT – General Motors (GM) will sell $4.5 billion in bonds to reduce debts owed to union-run trusts that pay health-care bills for the company’s US and Canadian retirees.

The company said it will spend $3.2 billion from the bond sale to buy 120 million shares of GM preferred stock from a US trust that provides health care to retired members of the United Auto Workers union. The lower-interest bonds will replace a 9% annual dividend on the stock.

It’s buying the US trust’s shares for $27 each, a $2 premium. After the sale closes, the US trust still will hold 140 million preferred shares, which GM can buy back for $25 each at the end of next year

GM also will use $1.2 billion from the new bonds to pay off 7% notes, retiring the debt now held by a trust controlled by the Canadian Auto Workers union, now called Unifor.

GM said in a statement that the debt moves should add 11 cents per share to the company’s earnings next year.

One-third of the new bonds pay a 3.5% interest rate, while another third are at 4.875%. The final third has a 6.25% rate. The notes mature in five, 10 and 30 years. The company expects to settle the bond sale by the end of the week, and will record an $800 million charge for the bonds in its third-quarter financial results.

Both the Canadian and US trusts got the debt for agreeing to take on expensive retiree health care costs. The unions had agreed to the move in an effort to help GM through financial struggles.

GM on Monday announced that it would sell the bonds to retire the UAW trust debt, but it didn’t state the size of the bond sale.

On Tuesday, Chrysler  filed paperwork to initiate an IPO at the request of the UAW run trust.

©The Canadian Press

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