General Motors Co. said it will pay $1.2-billion (U.S.) to the health-care trust that covers the costs of health benefits for its unionized Canadian retirees before the debt is due, eliminating one of a string of financial obligations that its General Motors of Canada Ltd. unit is scheduled to face later in the decade.
The principal and interest on the 7-per-cent notes for the Canadian health-care trust are due in periodic instalments during the next five years, but will be paid down from $4.5-billion worth of new debt that the auto maker said earlier this week it is raising.
GM said Monday that it was issuing three sets of notes with varying maturities, and would use $3.2-billion of the new debt to buy back 120 million preferred shares from the United Auto Workers health-care trust.
Buying back the 9-per-cent preferred shares and prepaying the 7-per-cent notes due to be paid to the Canadian Auto Workers health care trust will reduce GM’s interest costs.
The $4.5-billion in new debt includes $1.5-billion at 3.5 per cent due in 2018, another $1.5-billion paying 4.875 per cent due in 2023 and 30-year notes paying 6.25 per cent set to come due in 2043.
“We’re taking advantage of a favourable market to lower our cost of capital, increase our financial flexibility and further strengthen our fortress balance sheet,” Dan Ammann, GM’s chief financial officer, said in a statement Tuesday.
GM Canada faces repayments of $220-million (Canadian) to the federal and Quebec governments in 2017 and massive pension payments later in the decade to address solvency deficiencies in its pension plans.