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Moody's rated the new bond offering at junk status, one notch below investment grade. That's mainly because a GM holding company is selling the debt rather than the operating company, meaning operating company creditors would be repaid first if GM ran into financial trouble, said Moody's Senior Vice President Bruce Clark. The new notes are unsecured and would be repaid after considerable liabilities including GM's $28 billion unfunded pension liability, Moody's said. The health care trust currently holds 260 million GM preferred shares, while the Canadian government has 16 million. The company can buy back the shares for $25 each at the end of next year. It negotiated with the trust to buy some of the shares early, at a $2 premium. The trust got the shares after GM emerged from bankruptcy, to help pay the company's retiree health care costs. In a 2007 contract, the union agreed to take on an almost $50 billion obligation for retiree health care. The union made the concession as the company was headed into severe financial trouble. In exchange, GM agreed to contribute $26.5 billion to the trust. GM wanted the union to take on the costs so it could move them off of its books. At the time the company was obligated to pay health insurance costs for hundreds of thousands of retirees and their spouses, a huge expense that was strangling GM's finances. GM said it would take an $800 million charge next quarter for buying back the stock.
[Associated
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