DETROIT -- General Motors said on Thursday that a large part of the proceeds from the sale of its stake in Hughes Electronics Corp. would likely be used to fund its U.S. pension plan, which faces massive liabilities that threaten its credit rating.
"We haven't made a final decision until we see the money. It's targeted largely at the pension fund; I think that's a safe assumption," GM CFO John Devine told analysts on a conference call.
GM would receive $3.8 billion from Rupert Murdoch's News Corp. Ltd. for its 19.9 percent interest in Hughes, including about $3.1 billion in cash and the remainder in News Corp. preferred American Depositary Receipts (ADRs).
GM would also receive a special $275 million "value creation" dividend, upon completion of the deal, for converting its Hughes shares from a tracking stock to an asset-based stock.
GM's pension plan, the largest private pension plan in the United States, ended 2002 underfunded by $19.3 billion, due mainly to three consecutive years of stock market declines.
On Wednesday, Standard & Poor's Corp. lowered its debt rating outlook on GM to negative from stable, questioning how the world's largest automaker would fund both its pension and mounting health care liabilities. The credit rating agency, which also has a negative outlook for No. 2 automaker Ford Motor Co., said Ford was more likely to face a downgrade than GM.
S&P analyst Scott Sprinzen estimated that GM's pension liability had grown this year to between $23 billion and $26 billion.
GM's pension plan would also get a boost from its own sale of Hughes shares to News Corp.
GM's employee benefit plans -- including its U.S. pension fund and its employee health care funds -- hold 330 million Hughes shares. Last month, GM contributed 108.2 million Hughes shares to the pension plan.
Under the deal, Hughes shareholders would swap all their stock on a one-for-one basis for new Hughes shares and then exchange 17.5 percent of those shares for $14 per share in cash or News Corp. stock.
Devine said GM has no requirements to contribute to the pension plan this year to avoid funding penalties. But the automaker would like to add to the pension plan sooner rather than later.
"Our game plan on pensions, to the extent that we can afford it, we like to make contributions earlier than we have to," he said. "The most important issue is getting our pension funded as soon as we can."
GM said earlier this year that it planned to contribute up to $8 billion to the pension plan by the end of 2004. GM also has targeted raising $10 billion in cash this year, partly through asset sales such as the Hughes deal, and from its operations.
The Hughes stake is the latest asset that GM has agreed to sell to raise cash. Late last year, defense contractor General Dynamics Corp. agreed to buy GM's defense unit for $1.1 billion in cash. Last month, GM said it was considering selling the massive commercial mortgage arm of its General Motors Acceptance Corp. unit.