General Motors (GM) said that it intended to draw down the remaining US$3.5 billion of its US$4.5 billion secured revolving credit facility to maintain what the auto giant described as “high level of financial flexibility” at a time when the financial markets are uncertain.
“Accessing the funds available to us is a prudent liquidity measure. Drawing on the revolver now improves our liquidity position at a time when the capital markets have become more challenging,” GM treasurer Walter Borst said on Friday.
“The revolver draw will bolster the company’s liquidity position,” Borst said.
Borst said the proceeds from the draw would be available to retire US$750 million in debt maturities due next month, and to pay Delphi Corp in excess of US$1.2 billion as part of its reorganization efforts.
The US Pension Benefit Guarantee Corp had demanded that bankrupt Delphi Corp come up with US$1.2 billion to cover pension liabilities by the end of this month.
Delphi, which is based in Troy, Michigan, filed for bankruptcy and has solicited more than US$11 billion in financial assistance from GM, which originally spun off the company in 1999.
GM secured the US$4.5 billion revolving credit facility in July 2006 from a consortium of banks and provides liquidity that GM can draw on from time to time to fund working capital and other needs. At the time, GM executives had said they doubted they would need to draw on the facility.
However, car and truck in the US have dropped sharply this year and are not expected to recover until next year at the earliest and GM reported slender cash reserves of approximately US$16 billion at the end of June. The slender reserves had prompted speculation GM could be forced into bankruptcy.
In July, GM announced a plan to bolster liquidity through internal operating actions, asset sales and the capital markets.
“The internal operating elements of the plan remain on track and the company continues to look to opportunistically access the capital markets,” GM said in a statement.
GM also announced the completion of a US$322 million debt to equity exchange. GM is also campaigning to have the US government release another US$25 billion in guaranteed loans that could be used to finance the development of new technology.
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