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GM debt payment plan to be revisited in June

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GM debt payment plan to be revisited in June

NOVEMBER 18, 2009 - 11:46 AM ET

WASHINGTON (Reuters) -- A just-announced plan for General Motors Co. to repay roughly $8 billion in debt to the United States and Canada would be re-evaluated in June, the Obama administration's top automotive official said.

GM said this week it would begin paying back the U.S. and Canadian governments next month from a $13-billion escrow account containing cash left over from the government bankruptcy financing that established a new company in July.

Ron Bloom, who oversees the U.S. government's 61 percent equity stake in the automaker, said U.S. officials and GM would meet in June to consider how quickly taxpayers would be paid back from the GM escrow account.

"We have the right to extend it. We could ask them to pull it down. We could leave it as it is. We could just keep the billion (dollar payments) going," Bloom told Reuters in a Tuesday interview. "We could do any of those or some combination of the above."

Bloom said the repayment schedule reflected some relief that the bankruptcy was not more damaging to GM's sales and its network of suppliers. When the escrow account was created, U.S. officials gave it a cash cushion to protect against a more damaging downturn, he said.

"The bankruptcy was faster than even we thought it could be and the actual impact on sales was more modest than we thought. In addition, the supply base, while it shook, it didn't break," Bloom said.

Further changes to the payment plan depend on the strength of the U.S. auto market by mid-2010 and GM's own performance measured by targets, including vehicle pricing and overall profitability, Bloom said.

He declined to provide a view on his expectations for GM's finances next year, but said the U.S. Treasury's judgment on a debt payment schedule would depend on whether the auto market continues to recover and how GM performs against its plan.

"So we'll make a judgment and I don't have a view now as to what that will look like," he said. "We felt comfortable recommending up the chain and GM felt comfortable agreeing to that this was appropriate now but we have no view as to whether additional action is appropriate for June. We'll know it when we get there."

The plan for GM to start repaying the $8 billion in senior debt owed to the United States and Canada was announced Monday when it unveiled a $1.2 billion loss for a bankruptcy-shortened third quarter.

GM will make quarterly payments of $1 billion to the U.S. Treasury on a $6.7 billion loan and $200 million to repay the governments of Canada and Ontario for a $1.4 billion loan.

Most of the $50 billion in government support for GM was converted into equity in the automaker.

By paying down its $8.1 billion government debt, GM will cut its current $17 billion in debt almost in half. CEO Fritz Henderson has said the move will create room for the automaker to seek a private line of credit from banks.

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