GM to Issue Debt to Shore Up U.S. Hourly Pension Plan

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General Motors Co. said it will issue $2 billion in new debt to help shore up its pension plan for U.S. hourly workers.

The senior unsecured debt includes $1.25 billion of 6.6 percent notes due in 2036 and $750 million of 6.75 percent notes due in 2046, GM said in a statement Thursday. Goldman Sachs, Citigroup and Bank of America’s Merrill Lynch are managing the offering, the automaker said.

Standard & Poor’s and Fitch Ratings earlier in the day said they would rate the notes BBB-, their lowest investment grades. Moody’s put the debt at Ba1, one step below investment grade.

GM said it its annual regulatory filing earlier this month that it expected to make a $2 billion discretionary contribution, funded by debt, to the U.S. hourly plan by the middle of this year. The automaker, which also has a plan for its U.S. salaried employees, said in the annual report that its U.S. pension obligations at the end of 2015 totaled $71.5 billion and were underfunded by $10.4 billion. GM’s global pension obligations were about $95 billion, with a shortfall of $21 billion.

The money raised through the debt offering will help GM boost the total value of assets in the hourly fund. The Detroit-based company expected to achieve a return of 6.4 percent on its pension plan assets and achieved about 1 percent last year and 12 percent in 2014, said spokesman Tom Henderson. The Dow Jones Industrial Average was down 2.2 percent last year, according to Bloomberg data.

(Updates with pricing in second paragraph.)
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