General Motors plans to sell $10 billion in bonds and convertible debentures this week to fund its pension liabilities.
The auto maker said it would take advantage of low interest rates to refinance part of its US pension deficit, which stood at $19.3 billion at the end of 2002.
GM contributed $5.8 billion alone to its pension scheme last year. The company recently announced it would need to contribute around $15 billion by 2007.
"We are acting quickly to take advantage of the favourable capital markets environment. These offerings give GM the opportunity to strengthen its balance sheet while freeing up cash and improving financial flexibility," says John Devine, GM's CFO. "They will allow General Motors to use cost-efficient, long-term debt to provide near-term funding of some of its pension and retiree benefit obligations."
Analysts were unconvinced, saying GM is only swapping one form of liability for another.
"It sends a negative signal about the company's ability to cover capex, pension, and dividends with cash flow," says Gary Lapidus at Goldman Sachs.
"We believe that the last thing the U.S. auto industry needs is new capital, because it relieves pressure to address structural problems, enables the status quo, and delays the end game."