Impressive Shareholder Rewards Plan Boosts GM's Stock
General Motors Co.'s stock experienced a significant surge of nearly 10% on Wednesday following the company's announcement of a generous shareholder rewards plan. This encouraging news comes after the recent labor strike came to an end, allowing the company to reinstate its guidance for 2023.
Bondholders Rejoice Over Bond-Friendly Measures
Bondholders were also delighted by the news, particularly due to the implementation of some bond-friendly measures. This includes the cancellation of a $6.0 billion revolving-credit facility which the company had entered into in October.
Promising Future: Commitment to Share Buyback Program and Credit Facility
GM is now planning to enter a new 364-day $3.0 billion committed-credit facility with banks. These banks, on the company's behalf, will execute a $10 billion accelerated share-buyback program. Such developments instill confidence in GM's commitment to its investors.
S&P Global Ratings' Positive Outlook
S&P Global Ratings expressed its anticipation that GM will successfully fund the share buyback with cash. The credit rating agency also expects GM to maintain ample liquidity. As a testament to its confidence, S&P decided to leave its BBB rating on the credit unchanged.
Strong Financial Position Provides a Buffer
"In light of GM's automotive cash, cash equivalents, and marketable debt securities amounting to $29 billion as of Sept. 30, 2023, we are confident that the company can absorb any short-term production disruptions resulting from recent union negotiations," stated S&P.
Increasing Demand for GM Bonds
GM's bonds experienced net buying on Wednesday, with spreads on 10-year bonds tightening by about five basis points throughout the day. This positive trend is further illustrated by the chart below showcasing the increased activity surrounding GM's bonds in the past 10 days.
Reduced Risk with Maturity Cliff
The tightening of spreads in the past two weeks has also decreased the risk associated with GM's maturity cliff. Approximately $10.5 billion is set to mature in 2025, as shown in the following chart.
Dividend Increase and Strike Impact
Starting in January, GM has plans to raise its dividend by 33%. However, the recent strike did have some consequences, resulting in a loss of around $1.1 billion from adjusted EBIT (earnings before interest and taxes) due to halted production.
CEO Mary Barra Outlines Long-Term Strategy
Looking ahead, GM CEO Mary Barra conveyed her confidence in the company's future, stating, "We are finalizing a 2024 budget that will fully offset the incremental costs of our new labor agreements. Our long-term plan focuses on reducing the capital intensity of the business, developing products more efficiently, and further reducing our fixed and variable costs."
GM Stock Performance and Market Comparison
Although GM's stock has experienced a decline of approximately 6% year-to-date, it is important to note that the broader market indicator, S&P 500, has seen a gain of 19% during the same period.