GM Issues $2.25 Billion In New Senior Unsecured Notes1
General Motors last week had announced plans to issue two debt instruments in the form of two series of unsecured fixed rate notes collectively worth $2.25 billion. The newly-issued GM unsecured notes are comprised of:
- $1.0 billion of 5.40 percent notes due in 2029, and
- $1.25 billion of 5.60 percent notes due in 2032
In a press release, GM stated that it intends to use the net proceeds from the sale of the notes “to finance or refinance, in whole or in part, eligible projects described in GM’s Sustainable Finance Framework.” The offerings settled on August 2nd, 2022.
The announcement pertaining to issuance of the notes was hot on the heels of the GM Q2 2022 earnings, which were headlined by $1.7 billion in income on $35.8 billion in revenue. Compared to the second quarter of 2021, the results represented a 40 percent downturn in income and a 4.7 percent uptick in revenue on “higher corporate expenses primarily due to year-over-year mark-to-market changes,” according to the automaker.
GM Q2 2022 Earnings Summary
|Q2 2022||Q2 2021||Q2 2022 - Q2 2021||% CHANGE Q2 2022 / Q2 2021|
|GM FINANCIAL EBT-ADJUSTED||$1,106||$1,581||$-475.0||-30%|
|NET INCOME ATTRIBUTED TO STOCKHOLDERS||$1,692||$2,836||$-1,144.0||-40.3%|
|NET INCOME MARGIN||4.7%||8.3%||-3.6%||N/A|
|EARNINGS PER SHARE (EPS) DILUTED||$1.14||$1.90||$-0.76||-40%|
|NON GAAP METRICS|
|ADJUSTED AUTOMOTIVE FREE CASH FLOW||$1,407||$2,478||-$1,071||-43.2%|
|EPS DILUTED - ADJUSTED1||$1.14||$1.97||$-0.8||-42.1%|
|GM NORTH AMERICA EBIT-ADJUSTED||$2,299||$2,894||$-595.0||-20.6%|
|- GM NORTH AMERICA EBIT-ADJUSTED MARGIN||8.0%||10.4%||-2.4%||N/A|
|GM INTERNATIONAL EBIT-ADJUSTED||$209||$15||$+194.0||-|
|GM CHINA EQUITY INCOME||-$87||$276||$-363.0||-131.5%|
For those not intricately familiar with the financial lingo, an unsecured note is similar to a bond, but are backed by only a promise to pay. This makes this kind of security more speculative and therefore riskier than other types of bond investments. The upside, however, is that unsecured notes offer higher interest rates than secured notes or debentures, which are backed by insurance policies, in case the borrower ends up defaulting on the loan.
GM’s second quarter 2022 earnings report list the automaker as having $16.115 billion in long-term debt for its automotive business, which is part of $83.2 billion in total liabilities (also for the automotive side of the house). That compares to $131.8 billion in total assets assigned to GM’s automotive business.
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I don’t think the Oracle of Omaha would touch these. As Jerome Powell raises prime rates, private industry bond interest rates will go ++++++. 5.60% yields will be small in time.
Look for a repeat performance of 1984-85 financial history. 8 – 9+% bonds in a couple of years.
The insane real estate prices are an interesting factor in the equation.
Our current inflation is reminiscent of Germany’s inflation in the roaring twenties before the 1929 adjustment.