General Motors has announced plans to pay down its $10.4 billion in unfunded pension debt for U.S. hourly workers by offering 20- and 30-year unsecured notes.
The automaker will offer two types of notes:
- $1.25 billion of 6.60 percent notes due in 2036, and
- $750 million of 6.75 percent notes due in 2046
The automaker is hoping to raise roughly $2 billion in capital by selling the notes and help fund the underfunded pensions plans. The transactions are expected to close on February 23rd, which is when GM would receive the net proceeds.
In the event that it does not use all of the net proceeds for this contribution, GM said it would use the money for “general corporate uses.”
According to GM’s 2015 earnings, the company decreased its pension plan by roughly $5 billion to $71 billion, bringing the obligation to being 85 percent funded at the end of 2015.
“We intend for the U.S. hourly plan to be fully funded over time,” GM spokesman Tom Henderson said.
Following the announcement, Moody’s Investor Services assigned GM’s offering a “Ba1” rating, giving it a positive outlook.
“GM’s long-term ratings and positive outlook reflect Moody’s expectation that the company will continue to strengthen its performance in North America and Europe, and that it will maintain a strong position in China,” it said in a note. “In addition, we expect that the company will continue to make progress in building an operating structure that can contend with the risk inherent in the global automotive sector.”