Work takes place on the assembly line at Flint Engine Operations in Michigan. (Photo: Steve Fecht/General Motors)

DETROIT General Motors will sell $4.5 billion in bonds to reduce debts owed to unio-run trusts that pay health-care bills for the companys U.S. and Canadian retirees.

The company said Tuesday that it will spend $3.2 billion from the bond sale to buy 120 million shares of GM preferred stock from a U.S. trust that provides health care to retired members of the United Auto Workers unio. The lower-interest bonds will replac a 9 per cent annual dividend on the stock.

Its buying the U.S. trusts shares for $27 each, a $2 premium. After the sale closes, the U.S. trust still will hold 140 million preferred shares, which GM can buy back for $25 each at the end of next year

GM also will use $1.2 billion from the new bonds to pay off 7 per cent notes, retiring the debt now held by a trust controlled by the Canadian Auto Workers unio, now called Unifor.

RELATED: Chrysler reluctantly files paperwork for IPO at request of UAW run trust

GM said in a statement that the debt moves should add 11 cents per share to the companys earnings next year.

One-third of the new bonds pay a 3.5 per cent interest rate, while another third are at 4.875 per cent. The final third has a 6.25 per cent rate. The notes mature in five, 10 and 30 years. The company expects to settle the bond sale on Friday, and will record an $800 million charge for the bonds in its third-quarter financial results.

Both the Canadian and U.S. trusts got the debt for agreeing to take on expensive retiree health care costs. The unios had agreed to the move in an effort to help GM through financial struggles.

GM on Monday announced that it would sell the bonds to retire the UAW trust debt, but it didnt state the size of the bond sale.