Our Terms of Service and Privacy Policy have changed.

By continuing to use this site, you are agreeing to the new Privacy Policy and Terms of Service.

GM takes another step to repay bailout

By Chris Isidore, senior writer

NEW YORK (CNNMoney.com) -- General Motors is taking a big step toward repaying taxpayers for last year's $50 billion bailout, announcing it will repurchase $2.1 billion in preferred stock held by the Treasury Department.

The automaker has already repaid about $6.7 billion in loans. The plan to repurchase the preferred stock will leave Treasury's 61% stake in the company's common stock as the only part of the bailout yet to be repaid. Taxpayers will be able to start getting that money back when GM starts selling shares to the public once again later this year.

Treasury will sell part of its holdings at the time of the IPO, but will spread out its stock sales so as not to flood the market and drive down the stock's value. Whether taxpayers break even or make money on the bailout will depend on the value of the common stock when sold.

Preferred stock is closer to a loan than a widely-traded common stock. It pays a high-yield dividend. Treasury was receiving 9% on its preferred stock holding in GM, and has received about $700 million in interest and preferred dividend payments from GM since the bailout started. Treasury's statement simply confirmed it had agreed to the preferred share repurchase.

Treasury held 23% of GM's preferred stock outstanding, with 72% held by union-controlled trust fund set up to cover retirees' health care expenses, and the rest held by the Canadian government. GM did not announce any plans to repurchase the other preferred shares.

"I think the company's general approach is to move away from government ownership stakes," said Robert Schulz, the lead automotive credit analyst for Standard & Poor's.

The automaker is also taking additional steps to reduce its debt, announcing it will pay $2.8 billion owed to the union-controlled trust fund and that it will contribute $4 billion in cash and $2 billion in GM common stock to its under-funded pension plans.

The company also announced it is close to arranging a $5 billion, five-year revolving line of credit with a syndicate of banks, but it expects that line to remain generally undrawn.

That announcement is a sign that the company, which has long been saddled with junk-bond status for its debt and had to turn to the government to fund its operations in bankruptcy, is able to turn to the private sector for its financing needs.

Schulz said GM's debt reduction moves make sense given the roughly $31 billion in cash it had on hand at the end of June and the relatively high interest rates it must still pay.

S&P just reinstated coverage on GM debt three weeks ago for the first time since the company emerged from bankruptcy as a new corporate entity. It has a BB- overall corporate credit rating, three notches into junk bond status, but still the best rating for GM in five years. The new credit line is being rated just one notch below investment grade.

All of GM's common shares will have to be worth about $67 billion for taxpayers to make a profit. But analysts' estimates from earlier this year put GM's market value at between $64 billion and $90 billion, meaning a profit is within reach.

Still, that valuation will be a challenge, as rival Ford Motor (F, Fortune 500), which reported record third-quarter profits earlier this month, has a total market value of less than $49 billion. GM's highest market value ever was only $61.3 billion in May of 1999. To top of page

Index Last Change % Change
Dow 16,472.37 200.36 1.23%
Nasdaq 4,707.78 80.69 1.74%
S&P 500 1,951.36 27.54 1.43%
Treasuries 1.99 -0.05 -2.60%
Data as of 9:58pm ET
Company Price Change % Change
Bank of America Corp... 15.38 -0.17 -1.09%
Apple Inc 110.38 0.80 0.73%
Micron Technology In... 15.91 1.14 7.72%
General Electric Co 25.47 0.28 1.11%
Microsoft Corp 45.57 0.96 2.15%
Data as of Oct 2


After years of talks, negotiators for the United States and 11 other nations are trying to hash out final terms of a controversial free-trade agreement. The Trans-Pacific Partnership, or TPP, would make trade easier across many areas of business. More

Smarties, a Halloween candy staple, have been around for 66 years. Three Millennial women are revolutionizing it. More

Spending more than you make is bad for your finances, but other not-so-obvious money habits will hurt your long-term savings. More