GM to cut $11 billion in debt and pension obligations

In a series of moves that pave the way for an IPO and strengthen its finances, General Motors Co. on Thursday said it would repay $2.1 billion to U.S. taxpayers and make early payments to pension funds 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 cash and $2 billion of common stock to U.S. hourly and salaried pensions and buy back the preferred shares at a 2% 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 in debt off GM’s balance sheet and cut its net interest and preferred dividends by $500 million per year, GM said. GM has been paying 9% in dividends or interest for 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 other countries and emerging markets to draw global investors, people familiar with the matter said.

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 and marked the most significant action it has taken since Daniel Akerson became chief executive in September.

The Treasury Department said GM will have returned $9.5 billion to taxpayers after it 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% of GM common stock as the last remaining portion of taxpayer funding from the bailout.

In a speech at a Cadillac plant in Lansing, Mich., on Thursday, Akerson vowed that the automaker would work hard 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. “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.”