GM's bondholders say they want to deal

Posted by: David Welch on March 16, 2009

Bailout.jpg

General Motors is inching toward a few deals that it needs to restructure the company and stay out of bankruptcy. A committee representing its bondholders said on Monday night that it has submitted to GM management and President Obama’s Auto Task Force a framework for reducing the company’s $27.5 billion in bond debt. The committee didn’t give exact figures. But a source close to the committee said that its members basically agreed in principle to cut it by roughly two-thirds, which is the amount that the Bush Administration asked for last year before extending more credit to GM or Chrysler. Bondholders would get roughly one-third of the value of their bond in cash and the rest in GM stock.

But there’s a catch. Several, it seems. The bondholders want the United Auto Workers to reduce labor costs and accept equity for at least half of the $20 billion GM owes the union for healthcare liabilities. They want management to take a tougher look at the company’s restructuring plan. The bondholders have also asked the government to guarantee the cash portion of GM’s debt.

There’s another big catch. The bondholders committee represents about $6 billion worth of bonds directly and is in frequent contact with creditors holding about $6 billion more in debt. So the most the bondholders committee can do is make a call for $12 billion of the $27.5 billion in bonds. GM and the Task Force still must convince the remaining bondholders to take the swap.

That could be a big problem. GM needs about 90% of the bondholders to accept a cram down to fix its balance sheet. Otherwise, bankruptcy is still an option. In bankruptcy court, they only need two-thirds to agree to a cram down and the court will make the deal firm. No wonder Steve Rattner, the Wall Street banker who heads up the task Force, told the Detroit Free Press that the bondholders are being difficult. In any case, GM is moving in the right direction. The fact that the bondholders are submitting proposals—and making it public to counter Rattner’s claims that they are being difficult—indicates that some of them are willing to deal. They clearly feel enough pressure from the government and the glare of public scrutiny to say that they are willing to bargain. But much work remains.

Reader Comments

Marie

April 2, 2009 11:23 PM

Who are the major GM bondholders? Say, the top 100.

brian

April 9, 2009 4:33 PM

As a current GM bondholder, I will not accept any deal unless ALL current equity owners are wiped out.

It annoys me to no end that the government is trying to short circuit the bankruptcy process with politcal gamesmenship. Pay off our debt at face value or let GM go bankrupt

Richard Gottlieb

April 10, 2009 3:15 PM

I will agree to a bond cram down if the bondholders of the banks get the same treatment. From what I observe the GM bonfholders are being asked to give up retirement income and the bank bondholders still have thiers. Make it fair and I will agree. Otherwise bankruptcy for GM; liquidation. That way at least those of us who suffer most still have a chance to receive something

Barb

April 13, 2009 2:45 PM

Those who suffer most? The bondholders? Sounds like more greed to me.

Geoff

April 15, 2009 1:55 PM

Who is the bondholder's committee? How are they contacted?

Why should Goldman Sachs get bailed out at 80% to 100% via AIG bailout by US Government and GM bondholders get equivalent of US$0.09 on the dollar as per latest quote of 2033 bond?

As mentioned by another person here, as a bondholder, i certainly do not mind a "haircut" but ONLY after common equity holders are wiped out.

I bought $50,000 principal amount of the 2033 bonds in June 2008 at $68 per $100 - - - this was after Bill Gross in Barron's January 2008 Roundtable recommended the bond at $74.50. Subsquently on June 2, 2008, Barron's ran a cover story stating ". .why GM's share price could nearly triple." Subsequently on November 11, 2008, Reuters ran a headline "GM likely to survive, bonds a "buy" (per JP Morgan Chase analysts Eric Selle and Atiba Edwards).

And now the 2033 bond sells is selling for only $0.09 on the $1.00 while the common stock still sells for $1.80?

I will take a bath, but only willingly if treated fairly.

I HOPE THE BONDHOLDER COMMITTEE IS LISTENING.

Patrick

April 18, 2009 9:21 PM

The biggest bondholders will make more money if GM fails. They have credit default swaps to protect their investments. The retirees and pensions will be left with nothing. Look at who gains. Wake up people and see the banks who will not negotiate. Why would they risk nothing over something? Follow the money.

Patti in Michigan

April 21, 2009 8:23 AM

Why should the people who have worked hard and made the product and the retirees who worked a big part of their lives have to suffer?
If Gm goes bankrupt it will throw thousands more on the unemployment roles and a few hundred thousand retirees into poverty.
The guaranteed government pension is a substantial cut in the pension now received.Ours would be cut in half.We would not be able to stay in our home or keep up our vehicle payment(repo time).We are a tiny sample,there will be more home foreclosures,repossesions,credit card default,food stamps needed and $13.5 billion needed by the government pension plan.It is underfunded and will need government aid,so the taxpayers will be paying anyways.
Many retirees are too old to get a job and those that are not...well where would you get a job in a state like Michigan where I live? Wouldn't it be cheaper and better in the long run to LOAN GM the money and get it paid back someday than to spend billions that will never be repaid?
Obama will never be elected to a 2nd term if he stabs the union in the back and allows the retirees to be thrown away(think AARP,UAW support).
Better the bondholders get hurt than we lose the backbone of our industrial base.1 in 10 jobs in this country are connected to automotive.

Matt

May 8, 2009 3:14 PM

I think GM should File for Chapter 7 , Liquidate each of the brands and divide the proceeds among the creditors in accordance with the seniority of the debt and call it a day. The brands can survive as seperate companies

jordi

May 16, 2009 3:15 PM

I have GM Bonds...I had paid full price for them... I bought because I wanted to be part of the investment payment for my grandchildren education...Nothing wrong so far... What is incredible is that Mr. Obama is pushing for a deal that will eclipse the ones that his new friend Hugo Chavez in Venezuela is doing, as he normally pays 60-90% of the value of the assets... Mr. Obama wants to pay 5% only!!
I would like to ask Mr.Obama, who told him that Bondholders were Evil.Why he is against investors, is this a new Socialist government now moving forward with this deadlines and threats???. The only guys that send GM downhill where the UAW, with their normal threats to call for strikes etc. etc. Most of the Billions missing now are in their coffers and now Mr. Obama wants to reward them giving also 39% ownership...
Also Mr. Henderson was collecting high salaries, bonus, expenses and payments in the millions financed in part by us Bondholders!!!
If UAW gets to manage GM is going to be a great disaster and the burial of the company... This guys have no clue of how to manage one of the Icons of the USA industry... They only know about how to call for strikes, for less work and more vacation time...
Mr. Obama, please open your eyes... Is going to be very bad in the Chapter 11th court and if the Judge in charge does not bend the USA Laws the UAW will get very little... I will be ready to sue all the way by myself... I can accept that GM lost money but I will never accept that politicians not abiding by the Laws. If they take away from us by the force what is mine and of our grandchildren I am going to be very upset!!... This is totally a Leftist, Socialist-Communist idea and the procedure including the short deadlines for reaching agreements and not willing to negotiate face to face, totally foreign to the Country of Freedom and People Rights!!
I think will have to push for Chapter 7th against our will!!!

Joe Blow

May 21, 2009 5:38 PM

No question Obama is absolutely bending over bondholders in favor of JUNIOR debtors (like the union). He can sweet talk whatever BS he wants about them being greedy etc, etc but it's crap. It's payback for his union backers, which are organized and represent a distinct voting block, over the less organized bondholders who can be portrayed as greedy crooks. Unbelievable. I tried to give him a chance but he is ignoring the law - that was liberals' big beef with GWB.....any now they are all drinkin' the Kool-Aid.

Post a comment

 

About

Want the straight scoop on the auto industry? Our man in Detroit David Welch, brings keen observations and provocative perspective on the auto business.

BW Mall - Sponsored Links

Buy a link now!