Friday, July 28, 2006

GM clears pension agency hurdle in sale of finance unit

Friday, July 21, 2006
GM clears pension agency hurdle in sale of finance unit
Federal insurer says transaction won't stop automakers from paying current, future retirees.
Greg Bensinger / Bloomberg News

General Motors Corp. received U.S. pension agency clearance on one of the conditions for the automaker's $14 billion sale of a majority of its finance unit.

The Pension Benefit Guaranty Corp. won't take action to terminate GM's pension plans or impose liability on the purchasers as a result of the sale, according to a July 14 letter that the agency confirmed Thursday. Detroit-based GM disclosed the letter in a U.S. regulatory filing.

"One of the conditions has been satisfied so we're clearly happy about that," GM spokeswoman Toni Simonetti said. "We'll continue to work to close this in the fourth quarter. There's much to do."

GM, the world's largest automaker, in April agreed to sell 51 percent of GMAC to Cerberus Capital Management LP, which also includes Aozora Bank and a PNC Financial Services Group Inc. unit. The federal pension insurer has been reviewing the transaction to ensure it won't inhibit GM's ability to meet an estimated $89 billion U.S. pension liability for current and future retirees.

"The PBGC has a lot of power to get in the way of a transaction like this if they want to, so this is one of the major hurdles for GM to getting this thing done," said Pete Hastings, a fixed-income analyst at Morgan Keegan & Co. in Memphis, Tenn.

"I think the PBGC saw that GM workers will be better off with this sale. GM should be thrilled."

GM Chief Executive Officer Rick Wagoner chose to seek a buyer for the unit after debt ratings for the automaker and GMAC were cut to junk last year by Moody's Investors Service, Standard & Poor's and Fitch Ratings. GM would get $10.1 billion from the sale this year, including a $2.7 billion distribution from GMAC, and expects $4 billion more over three years.

A separation of GMAC from the parent would help stabilize its debt rating, Wagoner said when he announced the sale of the finance-unit stake in April. GMAC financed leases and loans on 2.16 million cars and trucks worldwide last year and operates in 39 countries.

Simonetti said remaining conditions to completing the sale include maintaining minimum credit ratings for GM, GMAC and the Residential Capital Corp. real estate financing unit; termination and repayment of debts between GM and GMAC; getting other U.S. and international regulatory approvals; and securing required legal opinions.

"We remain enthusiastic about closing the transaction on schedule," said Peter Duda, a spokesman for New York-based Cerberus. Gary Pastorius, a spokesman for the pension agency, declined to comment beyond the filing.

GM shares closed Thursday up 3 cents at $28.55 in New York Stock Exchange composite trading. They have gained 47 percent this year to lead the Dow Jones Industrial Average.

© Copyright 2006 The Detroit News. All rights reserved.

Finishing the deal

General Motors Corp. still has a few hurdles remaining to complete the $14 billion sale of 51 percent of GMAC to Cerberus Capital Management.

Settle all debts between GM and GMAC.

Maintain a minimum credit rating for GM, GMAC and Residential Capital Corp., GM's real estate financing unit.

Obtain additional government agencies approval.


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