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Q&A: GM will add up to $5.5B in cash to coffers


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Q&A: GM will add up to $5.5B in cash to coffers

BY JUSTIN HYDE

FREE PRESS WASHINGTON STAFF

WASHINGTON -- General Motors CEO Ed Whitacre's announcement today that the automaker has repaid $5.8 billion in U.S. and Canadian loans well ahead of schedule will mean some extra cash for GM's balance sheet.

To explain how, here's a look at the transactions:

QUESTION: If GM isn't profitable yet, where is the money coming from to pay off the loans?

ANSWER: The money comes from a $16.4-billion escrow fund set up by the Obama administration as part of GM's bankruptcy last year. It's part of the $30.1 billion the U.S. government turned over for its 61% stake of GM's equity.

Q: Doesn't that mean GM is just shuffling taxpayer money from pocket to pocket?

A: Not really. As part of the bankruptcy, GM and the U.S. Treasury had to estimate how much cash the company would need once it emerged and began working toward profitability. The Obama auto task force wanted to give GM some cushion in case the economy unexpectedly worsened, but didn't want to simply hand a pile of cash to the automaker.

So the escrow account came with strings. Under the task force's rules, GM must ask permission from Treasury before spending money from escrow. Those same rules required any money left in the escrow fund by June 30 be used to pay off the loans. It has dipped into the account to pay $2.7 billion for Delphi’s bankruptcy resolution and earlier loan payments totaling $2.4 billion, leaving $11.3 billion available as of March 31.

Q: Will paying off this much debt leave GM strapped for cash?

A: GM didn’t count the escrow among the $22.8 billion in cash on hand it reported for the end of 2009. While the automaker has significant bills to pay this year — including $6.1 billion in spending on new products, $3.3 billion for other debts and an unknown amount for any aid to its European unit Opel — the company expects it has enough cash to get by.

Q: What happens to the cash left in the escrow account?

A: Once GM pays off the U.S. loan, the rules restricting the escrow are lifted, leaving GM free to spend the rest without federal approval. That means up to $5.5 billion in unrestricted cash added to GM's coffers.

Q: So what does this say about GM's business?

A: It means GM is healthy enough it doesn’t need several billion dollars of emergency government money to run its business. GM may never pay back all of the roughly $50 billion that the U.S. government spent to keep it alive, but it’s no longer on life support.

link:

http://www.freep.com/article/20100421/BUSINESS01/4210323/1210/Q&A-GM-will-add-up-to-5.5B-in-cash-to-coffers

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GM may never pay back all of the roughly $50 billion that the U.S. government spent to keep it alive, but it’s no longer on life support.

Uhm... the U.S. government got 60% ownership of GM for that $50 billion. Since GM is estimated to be currently worth between $50b and $70b today, the government has $30b to $43b in GM equity.

When GM IPOs, the government is not going to dump all of it's stock on the market all at once... it will slowly sell off it's ownership over 3 to 5 years.

With very little debt, GM is in a great position to grow dramatically. It is entirely possible that the government will at least break even if not make money on the deal.

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I think the Government will make money on the deal... almost 2 Billion common shares they probably own, and if the IPO is around 15$ then that's near thirty billion right there. My only fear is that some foreign entity, perhaps the Chinese will buy up all the GM stock and gain control of it.

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I think the Government will make money on the deal... almost 2 Billion common shares they probably own, and if the IPO is around 15$ then that's near thirty billion right there. My only fear is that some foreign entity, perhaps the Chinese will buy up all the GM stock and gain control of it.

Or Carlos "The Jackal" Ghosn. He has always wanted some pie in GM. That remains my major fear too. I would rather see US banks (gulp) take share than those people. Given GM's tech prowess none of these people should get a sitting duck during the IPO.

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