GM seeks Green Bond loan to fund past and future zero-emissions projects
General Motors announced Thursday that it has launched a senior unsecured fixed rate note offering and is using the money from ticket sales to “finance or refinance” green projects such as electric vehicles.
Basically, that means GM will take out a loan to pay off the debt it already owes on all projects in its sustainable financing framework.
Any remaining money will be used to fund new projects within the framework.
GM Sustainable financing framework includes its zero-emission vehicles, battery technology, battery storage and management systems, fuel cell technology, charging infrastructure and other green initiatives such as making electric vehicles and self-driving taxis accessible to all income levels and all communities.
“It’s a green bond with a fixed interest rate, which is still being negotiated with the borrower and the end lenders,” said Erik Gordon, a business professor at the Ross School of Business in the University of Michigan. “They can use the money to fund any of these types of green projects in the future or any of the green projects they’ve spent money on in the last 24 months.”
Gordon has reviewed the preliminary prospectus that GM filed Thursday morning on the offer with the SECOND. The filing did not indicate how much money GM is seeking to raise or other details. GM spokesman Jim Cain said he was “unable to comment” on the matter at this time.
But in the evening, GM issued a press release saying it was announcing the price of two sets of senior unsecured fixed rate notes for a total of $2.25 billion. The notes include $1 billion of 5.40% notes due 2029 and $1.25 billion of 5.60% notes due 2032. The offering is expected to settle on August 2.
This is the second time this week that GM has issued future loans. On Monday, the Department of Energy announced “a conditional commitment” for 2.5 billion dollars to the 50-50 joint venture of GM and LG Energy Solution called Ultium Cells LLC. The US government loan would be used to build battery cell factories for electric vehicles, including one in Lansing.
“Assuming the loan is approved, it would have the effect of reducing the amount of capital the joint venture partners would need to fund directly,” Cain said at the time. “Ultium Cells will repay the loans with proceeds from the sale of its cells to GM.”
Gordon said companies typically offer these types of deals for the same reasons people refinance their mortgage: to get a lower interest rate when they can.
“They’re on the lookout to see if they can lower their borrowing costs,” Gordon said. “It’s standard procedure. The timing is probably driven by fear of a rate hike. If they do it in six months, they’ll probably pay more for the new loan than they do today. today.”
On Wednesday, the Federal Reserve issued a 75 basis point rate hike, the second this year. That means the rate banks charge themselves for overnight borrowing is now 2.25% to 2.50%, the highest since December 2018, according to CNN Business.
During GM’s earnings call with analysts on Tuesday, Chief Financial Officer Paul Jacobson alluded to GM’s refinancing plan, saying GM is “finalizing GM’s sustainable financing framework agreements, which will unlock options to help us align our balance sheet with our ESG (environment, social and governance) strategy.”
GM’s ESG strategy consists of its promise to be a carbon neutral company by 2040 and to develop socially responsible programs to ensure everyone has access to clean transportation. In May, GM asked its suppliers to sign a pledge pledging to achieve the same goals.
GM did not disclose the amount of money it plans to borrow to repay the debt because those terms are still being negotiated between the borrower and the lenders, Gordon said.
“They haven’t decided on the amount,” Gordon said. “This is a preliminary prospectus…it omits amount, interest rate and maturity date.”
As for “green bonds,” Gordon said, they began in recent years as an “outgrowth of the ESG movement.”
To support the green movement or environmentally friendly initiatives, green bonds typically have two interest rates, Gordon said.
“The one you pay depends on whether you meet green targets agreed to in advance by the company and the lenders and it’s measured,” Gordon said. “During any period that you meet the green targets, you pay the lowest interest rate. If you miss, you pay the highest interest rate. Green bonds go beyond the grand announcement of the CEO, they actually measure performance and performance Consequences of pennies Good idea.