General Motors Co. said Tuesday it is offering $2.5 billion in senior unsecured notes to raise money, and also intends to redeem $3.9 billion in preferred shares held by the UAW Retiree Medical Benefits Trust and Canadian government at or after the end of the year.
The Detroit automaker could use some or all of the money raised in the offering for general use, but is likely to use most of it to cover the share purchase, along with cash on hand.
The preferred shares are expensive to the automaker because they carry a 9 percent quarterly dividend that totals about $348 million a year. GM can redeem 156.1 million outstanding Series A preferred shares on or after Dec. 31, GM spokesman Tom Henderson said. The retiree benefits trust owns 140 million of those shares, while the Canadian government owns 16.1 million.
Henderson said the company hopes to retire the higher cost preferred shares and replace them with the lower cost debt. GM is offering $500 million in 4 percent notes due in 2025, $750 million of 5 percent notes due in 2035 and $1.25 billion of 5.2 percent notes due in 2045. The offerings are expected to settle Nov. 12.
“Favorable market conditions made now the appropriate time to add liquidity to further strengthen our fortress balance sheet and improve our financial flexibility,” GM Chief Financial Officer Chuck Stevens said in a statement.
The retiree benefit trust, a voluntary employees’ beneficiary association, or VEBA, acquired about 260 million shares of GM preferred stock as part of the 2009 bailout of the automaker. Last year, GM bought 120 million shares of Series A preferred stock from the UAW VEBA for $3.2 billion.
GM’s 2013 third-quarter earnings were reduced by $816 million with the repurchase of those shares. If GM were to redeem all Series A preferred stock, it would likely see its net income reduced by another $800 million in the quarter at the time of the purchase.
The VEBA also owns 140.15 million common shares of GM stock, representing 8.8 percent of GM common shares as of February. The VEBA’s ownership stake in GM’s common stock wouldn’t change if the redemption of preferred shares occurs.
The Canadian government in September 2013 sold 30 million shares of GM common stock, netting proceeds of more than $1.1 billion in U.S. dollars. In March, the Canada Development Investment Corp. said it owned about 7 percent of common GM shares.
The VEBA provides health care benefits to about 755,000 UAW retirees and dependents.