GM May Adjust Co-Co Bond Payout

A change from shares to cash could come in response to new accounting rule.
Stephen TaubAugust 9, 2004

General Motors Corp. said it may change the way it pays off investors in its contingent convertible bonds in response to a new accounting rule proposed by the Financial Accounting Standards Board (FASB).

The auto giant said it may use cash instead of stock to pay off the principal amount of its roughly $8 billion in what are common called Co-Co bonds, according to Reuters.

Last month, the company reportedly predicted that its 2004 earnings would be shaved by about $1 per share if the rule goes into effect. Under FASB’s proposal, companies must count these convertibles when they calculate diluted earnings per share, which would result in lower earnings per share figures.

Co-Co bonds are generally convertible into common shares after the common stock price has exceed a predetermined threshold for a specified time period.

FASB’s proposal, if adopted, would be effective for reporting periods ending after Dec. 15, 2004.

“GM would waive its right to issue stock to settle at least a principal amount of the debt,” GM CFO John Devine told an auto conference last week, according to Reuters. “This means that we would use cash rather than stock and significantly limit any diluted effect.”