GM said the purchase of the preferred stock held by Treasury will be at a price equal to 102 percent of the $2.1 billion liquidation amount. As a result, the company will record a $700 million charge -- attributable to common stockholders -- for the difference between the purchase price and the recorded value of the Treasury's preferred shares.
GM will also record a $200 million non-cash gain in the fourth quarter of 2010 related to the retirement of the UAW Retiree Medical Benefits Trust debt.
The automaker plans to contribute at least $4 billion in cash and $2 billion in GM common stock to its U.S. hourly and salaried pension plans following the completion of its initial public offering -- anticipated next month.
GM has also secured a $5 billion, five-year revolving credit line with a syndicate of banks to provide an additional source of liquidity. The automaker said the credit line is expected to remain “generally undrawn.”
“These actions will bring down our leverage by $11 billion by reducing debt and improving our pension funding position,” GM CFO Chris Liddell said in a statement.
The pension contributions are contingent upon Department of Labor review, and the number of shares contributed will be determined based on the public offering price for GM's common stock.
Separately, GM said it plans to terminate an agreement which provides for accelerated receipt of payments made by financial institutions on behalf of U.S. dealers under wholesale financing arrangements.
Under such arrangements, GM dealers borrow from financial institutions to fund their inventory of vehicles purchased from GM. Similar modifications will be made in Canada, the company said.
The so-called ‘wholesale advance agreements' cover the period when vehicles are in transit between assembly plants and dealerships.
Upon termination, GM said it will no longer receive payments for vehicles purchased by the dealers in advance of the scheduled delivery date.
The move will result in an estimated $2 billion increase in GM's accounts receivable balance, on average, depending on sales volumes and certain other factors in the near term, the automaker said.
GM also said the related costs under the arrangements will be eliminated.
“Completion of these actions will enable us to reduce net interest cost and preferred dividends by $500 million per year,” GM Treasurer Dan Ammann said in the statement. “As importantly, we will have approximately $24 billion of total liquidity as of June 30, 2010 pro forma for these actions, our AmeriCredit acquisition, and excluding any public offering proceeds.”