General Motors and Treasury Department Deal

Summary: General Motors gave a reverse split stock to its shareholders – every 100 shares would be given one more stock. This is part of a government deal as a debt swap for their $10 billion loan. A separate filing also gave their Canadian subsidiary a $3 billion loan from the Canadian government.

General Motors Corporation plans to do a reverse stock split.

This reverse stock split would give shareholders a single share of stock for every 100 that they currently own. Upon filing with Securities and Exchange Commission, General Motors (GM) said that this is part of a deal with Treasury Department wherein the government promised to assume 50% of GM’s debt as a swap for the shares.

The government would get half of their equity stake and exchange it for $10 billion of loan forgiveness. Due to the treasury loan and bond exchange, GM will issue 60 billion shares.

Its Canadian subsidiary will also receive $3 billion Canadian ($2.6 billion U.S.) from the Canadian government in a separate filing. According to the terms, GM can draw the loan in $500 million Canadian ($425.5 million U.S.) installments and the government would receive a loan repayment of 35%.

Moreover, the union called Canadian Auto Workers (CAW) approved contract modification to help GM cut some labor costs. But Fritz Henderson, the Chief Executive Officer of GM, said that they would go back to renegotiate with the union to ask for deeper cuts and match the one approved by the CAW workers of Chrysler.

GM just received a $15.4 billion loan from the U.S. government. They’re facing a deadline to restructure (June 1) or be forced into bankruptcy (Chapter 11) protection.