How Did GM Pay Off the Loans Early?

By Stephen Markley  on April 21, 2010
Following GM’s announcement today that it has repaid the $5.8 billion in U.S. and Canadian loans months ahead of schedule, you may be wondering how exactly the automaker managed this. The answer is a $16.4 billion escrow account set up by the Obama administration during GM’s bankruptcy. Those funds are in exchange for the GM shares that make up part of the government’s stake in the company.

The Treasury Department had to figure out how much of a cushion the company would need after emerging from bankruptcy. The escrow account was set up when the government bought a 61% stake in the company, but there was a string attached: GM had to get the Treasury Department’s OK before spending the money.

Thus far, it used the fund to pay out $2.7 billion for the Delphi bankruptcy resolution and previous loan repayments. Rules required any money left in the account by June 30 to be used for loan repayment. With the loans fully repaid, restrictions on the escrow fund will be lifted and GM will be allowed add the remaining $5.5 billion to its reserves.

So what’s the bottom line?

Essentially, GM no longer needs emergency government aid to stay afloat. While the taxpayer still has a sizable investment wrapped up in the automaker, GM has returned to decent health for the time being.

Q&A: GM Will Add Up to $5.5B in Cash to Coffers (Detroit Free Press)

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