GM to buy back some preferred shares from UAW trust for US$3.2b

General Motors said on Monday it would buy back just under half of its preferred shares held by the United Auto Workers healthcare trust for about US$3.2 billion, essentially cutting company costs by financing the deal with lower-cost debt.

To finance the purchase of 120 million of the Series A preferred stock from the UAW Retiree Medical Benefits Trust at US$27 a share, GM said it would raise funds with a debt offering.

The UAW trust, which manages retiree health benefits for blue-collar auto workers, received an 8 per cent premium on what it would have received at the end of next year. The deal also gives it the money now, so it can invest earlier in hopes of raising more funds to pay retiree medical care costs that are set to rise further in the future.

GM did not specify how much it would raise but said the debt would be five-, 10- and 30-year senior unsecured notes, which would be offered on or before September 30.

It said it expects interest rates on the debt would be far below the preferred shares’ 9 per cent dividend, which currently results in an annual payment of US$620 million.

The UAW trust received its preferred shares as part of the automaker’s US government-funded US$49.5 billion restructuring and bankruptcy in 2009.

“Management is choosing to raise capital to fund the transaction given the cheap cost of financing due to the ongoing low interest-rate environment,” Buckingham Research analyst Joseph Amaturo said in a research note.