DETROIT, Sept 23 (Reuters) - General Motors Co said on Monday it would buy back just under half of its preferred shares held by the United Auto Workers health care trust for about $3.2 billion.
To finance the purchase of 120 million of the Series A preferred stock from the UAW Retiree Medical Benefits Trust at $27 a share, GM said it would raise funds with a debt offering.
GM did not specify how much it would raise but said the debt would be 5-, 10- and 30-year senior unsecured notes.
It said it expects interest rates on the debt would be far below the preferred shares’ 9 percent dividend, which results in an annual payment of $620 million. That means GM is essentially refinancing some of its debt, replacing the preferred shares with lower-cost debt.
The UAW trust, which manages retiree health benefits for blue-collar auto workers, received its preferred shares as part of the automaker’s U.S. government-funded $49.5 billion restructuring and bankruptcy in 2009.
There are currently $6.9 billion worth of the preferred shares, with the UAW trust owning $6.5 billion, or 260 million shares, and the Canadian government $400 million, or 16 million shares. GM has the right to buy back those shares on or after Dec. 31, 2014 at $25 each.
GM has said previously that it intended to buy back the preferred shares when allowed. However, the automaker negotiated the earlier repurchase from the UAW trust. As a result of paying a $2 per share premium and taking an accounting loss on the deal, it expects to record a charge of about $800 million in the third quarter that would be treated as a special item.