GM Bondholders to Receive Even Worse Terms

According to MC Cabrera, GM's bondholders are about to get a substantial shaft: a new proposed offer to them would include:

- $0 new cash
- $0 new debt
- 10-20% of the company stock.

This is a dramatic deterioration from the old proposed offer (which bondholders were not happy with in the first place):

- 8 cents cash
- 16.5 cents new debt
- 90% of GM stock

The revised terms are based on the auto task force's determination that due to deteriorating economic conditions, the initial offer to bondholders had been far too generous. Bondholders are guaranteed to balk at this offer, with the government likely to end up getting a super secured position via a DIP, thus cramming down the bonds even more in bankruptcy... Of course, the tables would turn if the administration truly has an ulterior motive of equitable subordination of its claim as ZH speculated.

Comments

[User 387439:]

What about AIG , Citi Corp, etc? They are the ones getting HUGE allocations of money, NOT A LOAN like GM needs. And ALL those AIGs, Citi's etc did not have to make multiple trips to Washington, did not have to justify themselves or their companies positions, did not have to have ongoing arguments about bondholder/shareholder values, did not have to reduce employee wages, did not have to fire anyone like GM did. And they got , I don't know, over $800 BILLION so far and your are not angry of upset about that??? They ripped people off, sold CDS, derivatives of dubious value, lied to investors and the government.

Apr 09 02:19 PM

[mcl_mixer:]

I own a number of GM bonds. They're all worth alot less than what I paid for them. If this is their latest offer, I'd rather see them liquidate the company.

Apr 09 02:50 PM

[AndrewDover:]

Like the previous comment, I prefer a liquidation based upon legal principles rather than a lousy deal.

GM bondholders were suppliers of cash instead of mufflers. How is it that the non cash suppliers are getting special Govt help ?

A reasonable deal is to convert all of GM's debt to equity.

But since retiring workers (Suppliers of labor) were offered a car coupon so should small bondholders. GM may not have cash, but they do have a large car inventory.

GM's choices are simple; default, wait, or make a reasonable offer.
The bondholders will liquidate on a default; do nothing as long as their interest is paid; and take a reasonable offer.

But offers of equity before a bankruptcy to come which would wipe out that equity are not reasonable.

Apr 09 04:17 PM

[babyray:]

The UAW has opened up its contract twice in the last 4 years. The bondholders and dealers are going to have to give something up!!!

Apr 09 04:53 PM

[joe lunch box:]

GM goes into bankruptcy watch the fur fly. This is a big deal. Millions of jobs could be potentially lost. Everyone has to give. Liquidation of the company is a real threat and if that happens, America as we know it could change forever. Have a nice day. : )

Apr 09 05:44 PM

[Livin' in t...:]

A GM bankruptcy is about the worst thing we could do to ourselves as taxpayers. THe institutions have themselves covered with these Credit Default Swaps. So sending GM into bankruptcy would allow them to collect the full amount of their bonds. The banks who underwrote these contracts will use taxpayer money to pay off the institutions. The retail bond ( US retirees inmany cases) investors will get nothing. The taxpayers will have to support GM during bankruptcy, that means more money from taxpayers. GM will be able to transfer their pension obligations to the Department of Labor's PBGC which will only pay about $.30 on the dollar owed, if that. Oh, and the stock will be worthless ( which doesn't mean much these days. So who is the Fed kidding. If Obama is so smart and his team of advisors have such concern for the middle class, then they know a bankrupt GM will devastate millions of families. At this point, force GM to use the tax free profits from their global sales in China and Europe to pay the bondholders and keep GM out of the courts to save us all money.

Apr 10 06:29 AM

[ex GM emp:]

Like my clueless buddies still at the plant and waiting for a "better deal" buyout or retirement package, the bondholders, equally clueless, waited for a "better deal". Stupid is as stupid does, FG.

Apr 10 09:21 AM

[TeresaE:]

The feds are gifting $5billion to GM/Chrysler Suppliers. Wonder how much of the $5 billion will go to China-as that is where most of their key suppliers have moved. Funny, they don't have many customers anymore when they bankrupted their best ones.

Once GM/Chrysler file, you all will find out how "unimportant" manufacturing is to your business- or to your customer's businesses.

Apr 10 10:28 AM

[a. palmer jr.:]

I'm not sure why the bondholders of GM should have to be screwed. They did nothing sinister, just invested some of their money hoping to receive interest on it. At least GM should offer bondholders merchandise of equal value for the bonds they hold. The way they seem to want it is for the bondholders to be screwed twice; a loss on their bondholdings and the bailouts using their taxpayer dollars which probably won't be paid back. Consider me a Ford man from now on.

Apr 10 01:52 PM

[mepo:]

we don't know how we feel anymore on this issue. my wife and i invested in gm corp notes a long time ago gms and xgm pretty much thinking if gm ever went under then things in the u.s. and canada would be so bad it wouldn't really matter. we suspect our worst nightmare has come true. put what you own into gold or put it in the back yard. we feel the obama administration has really let detroit down. they're shuttin' detroit down ( listen to the song) . never ever thought we'd see that. just another typical, bullshitting president.

Apr 18 09:20 PM

[BubbaClyde:]

Of course GM (a subsidiary of Obama and the UAW) plans on bankruptcy. It's brilliant. They can scream to a sympathetic press that the evil bondholders pushed them into it by refusing to bear their "fair share" of the so-called shared sacrifice; and still emerge with ownership of the assets and cancellation of the debts (i.e., the extinguishing of bondholders' legitimate claims). How? Uh, who do you think will determine the identity of the bankruptcy judge? Do you really think that the combined forces of GM, the UAW, the White House and the local elected officials (all Democrats, all beholden to and dependent upon these other nice folks) will leave that issue to chance . . . in Detroit? Do you really think that the bondholders, spread out all over the country, have any real influence there? The game is fixed, and its outcome has already been decided. There was never any point in negotiating with the creditors, for their voices were never going to be heard. Anyway, many of the bondholders who might have had any influence are already insured against the loss of their principal. It'll be the little guys who get screwed and vilified simultaneously on this happy road to nationalization.

Moreover, the long-term implications for corporate financing through the bond market will simply provide the excuse government craves in seeking to expand its chokehold over private enterprise. Bernie Madoff could never have imagined stealing the kind of money Obama's about to seize, and it's only the beginning. With Specter joining the Democrats and Franken about to give the Dems a veto-proof sixty vote majority, the bondholders (and not just GM's) are cooked.


On Apr 18 09:20 PM mepo wrote:

> we don't know how we feel anymore on this issue. my wife and i invested
> in gm corp notes a long time ago gms and xgm pretty much thinking
> if gm ever went under then things in the u.s. and canada would be
> so bad it wouldn't really matter. we suspect our worst nightmare
> has come true. put what you own into gold or put it in the back yard.
> we feel the obama administration has really let detroit down. they're
> shuttin' detroit down ( listen to the song) . never ever thought
> we'd see that. just another typical, bullshitting president.

Apr 28 08:23 PM