GM Adds to Its Debt Mountain to Fund UAW VEBA
As we chronicled in GM Death Watch 165, details of the new $33b – $36.5b GM – United Auto Workers (UAW) health care VEBA (Voluntary Employees Beneficiary Association) are beginning to emerge. That said, neither this site nor the 600k+ UAW workers whose health care depends on this trust know the timing or amounts of GM's contributions to the fund. While we await that info, The Detroit Free Press reports that GM's raising money to pay into this Mother of All Health Care Trusts. Regulatory documents reveal that GM has taken on an additional… wait for it… $8.39 billion in debt. The Freep breaks it down to "4.37b in 6.75% bonds, due in December 2012 and convertible into GM shares, and a $4.02 billion, 9% short-term note." As a quick reminder, GM's interest payments on its current debt burden are $2.9b per year. Again, we don't know how much more cash GM will need to fund the VEBA, and when they'll need it.
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The article is written in past tense and indicates that GM has already borrowed this money. No, they have not put an IOU in the VEBA. GM put in the $8.39b in cash that they just borrowed. The VEBA has the money. The bond holders and lenders have the IOUs. If GM fails to pay back the loan, the money lenders are left holding the bag. However.... GM still has $22b left to finance and we don't know how they plan to do it. If we assume the worst case senario, then it is $22b in IOU's.
I don't understand how this VEBA helps GM right nowwhen they are just shifting what they owed to debt(at a pretty high interest rate) they have to service every year for who knows how long since they don't even know when they will be profitable again. It just looks like they shifted the problem from one paper to another. I understand they are getting a break on the total owed but how does this help them become more competative NOW.
GM wouldn't try to fully fund the VEBA with debt right before they declare bankrupcy would they? I mean that would be some pretty serious fraud I would think. Who in their right mind is loaning GM money at this point. Excuse me while I go scrub my 401k mutual funds to make sure it isn't me.
Tulsa, I was thinking the same thing. If GM files for bankruptcy, will creditors go after the VEBA? I strongly suspect that the VEBA will be off limits. That is a good thing for the beneficiaries. This is similar to the protections given to your 401k, and to a lesser extent your IRAs by ERISA. Creditors and BK can not touch your 401k. Your IRA can be tapped to varying degrees based on state law. TX and FL protect your IRA 100%. California, only the amount determined by the court to be above what is minimally needed to fund a retirement. On the other hand, I hope the creditors buying the bonds and loaning the cash have full disclosure. I think they do considering the high rates GM is paying for the money. [For non US readers: 401k's and IRA's are types of retirement accounts, sort of like Superannuations]