General Motors is offering $2 billion in bonds to cover a portion of its unfunded pension liability.
In a filing with the Securities Exchange Commission, General Motors announced plans for a bond offering to cover a portion of the unfunded liability in the company’s pension plan for hourly employees.
GM has priced two series of senior unsecured notes for a totaling $2 billion. The notes include $1.25 billion of 6.60% notes due in 2036 and $750 million of 6.75% notes due in 2046.
The offering is expected to settle on Feb. 23, 2016, GM said in statements. The overall scope of the offering of the offering is relatively modest, given the company’s cash reserves, which it has pegged at more than $30 billion in its most recent financial statements.
“GM ended 2015 with total automotive liquidity of $32.5 billion compared to $37.2 billion at year-end in 2014. Automotive cash and marketable securities was $20.3 billion at the end of 2015, compared to $25.2 billion a year earlier,” GM said earlier this month.
The automakers intends to use the net proceeds from the sale of the notes to make a discretionary contribution to its U.S. hourly pension plan and, in the event GM does not use all of the net proceeds for this contribution, for general corporate uses, GM said.
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The underfunding of the company’s pension plans have been a chronic problem for GM for the better part 25 years, going back to the early 1990s.
However, GM has relieved the pressure on its salaried pension plans by ending the traditional defined benefit plan for salaried employees and offering new salaried employees 401K in its plans.
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New hourly employees are also offered 401K but hourly employees and hourly retirees continue are still covered by the traditional defined benefit plans originally created in the years after World War II. GM’s unfunded liability is center in these plans, which were not altered during last fall’s negotiations with the United Auto Workers union.
GM has filed a registration statement, including a prospectus and preliminary prospectus supplement, with the SEC for the offering covered in the government filing.
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The offering will be managed by Goldman Sachs, Citigroup and the Merrill Lynch, according to GM’s announcements. Prospective investors should read the prospectus in that registration statement, the preliminary prospectus supplement and other documents GM has filed with the SEC for more complete information about GM and this offering.