GM's Bondholder Pillaging Plan

Link here. Perusing the bondholder pillaging plan now. Looks like GM is being nationalized (at least U.S. getting majority stake). [Emphasis mine.]

Summary:

- U.S. would get 51% pro forma stake with debt conversion
- Bondholders would represent 10% of new pro forma stock
- Existing common stock would represent 1% of new pro forma stock
- Pro forma stock to be issued for VEBA, U.S. Treasury - 31.2 billion
- Bondholders get 225 shares of stock for every $1,000 in bonds, parallel with humongous dilution
- Debt to be cut at least $20 billion between debt conversion/VEBA action
- If tender is not agreed to, company files bankruptcy

Amusing snippet from the S-4: when the administration tells you that you are too optimistic, you know you have a problem:

A statement released by the U.S. government with respect to the President’s Designee’s viability determination (the “Viability Determination Statement”) indicated that while many factors had been considered when assessing viability, the most fundamental benchmark that a business must meet to be considered viable was its ability—after accounting for spending on research and development and capital expenditures necessary to maintain and enhance its competitive position—to generate positive cash flow and earn an adequate return on capital over the course of a normal business cycle. The Viability Determination Statement noted that our Viability Plan assumed that we would continue to experience negative free cash flow (before financing, but after legacy obligations) through the projection period specified in our Viability Plan, thus failing this fundamental test for viability.

The Viability Determination Statement noted that we were in the early stages of an operational turnaround in which we had made material progress in a number of areas, including purchasing, product design, manufacturing, brand rationalization and dealer network. However, the Viability Determination Statement also indicated that it was important to recognize that a great deal of additional progress needed to be made, and that our plan was based on, in its view, assumptions that would be challenging in the absence of a more aggressive restructuring, including assumptions with respect to market share, price, brands and dealers, product mix and cash needs associated with legacy liabilities. In this regard, the Viability Determination Statement noted that:

• our plan contemplated that each of our restructuring initiatives will continue well into the future, in some cases until 2014, before they are complete and it concluded that “the slow pace at which [the] turnaround is progressing undermines [GM’s] ability to compete against large, highly capable and well-funded competitors”;
  
  
• “given the slow pace of the turnaround, the assumptions in GM’s business plan are too optimistic”; and
• even under “optimistic assumptions [GM] [will] remain breakeven, at best, on a free cash flow basis through the projection period, thus failing the fundamental test of viability.”

Comments

[User 402966:]

Why does the US taxpayer have any responsibility to the GM bondholder? The outrage here is NOT the "pillaging" of the bondholder - it is the use of taxpayer money to bail them out. A viable GM can emerge from bankrupcy even if current bondholders are wiped out.

DL

Apr 27 12:41 PM

[Whippet:]

Here comes Congressional Motors. Put me on the waiting list for one of the first PUMAs to run off the line. Maybe by then they'll color it hot pink and rename it the Pelosi Panther- I can only hope.

I agree with 402966- since when should the US taxpayer be on the hook for a failed company? The invisible hand has been amputated.

Apr 27 12:55 PM

[conceptwizard:]

The writing is on the wall here...I wonder how many You Tube songs will come out with the GM Chapter 11 Heading.

Apr 27 01:07 PM

[Lilguy:]

The bankruptcy of GM & Chrysler (this week!) will be two more stakes in the economy's heart and drive a huge hole in the now-stumbling bear market rally.

I think May is going to be an ugly month in the market and the economy, although USG stats won't pick up the latter until at least June. And I really don't think the market has fully priced in the now-likely bankruptcies, at least not as of today.

Apr 27 01:25 PM

[yellowhoard:]

Coming Soon From Congressional Motors!

The CM SUX 2010. Weighing in at well over 800 pounds, the muscular SUX is the car to get you from here to there!

85 wild horses will squire to the foodlines in the kind of style that one can only expect from CM.

Got groceries? The CM SUX has plenty of space for not only you the driver, but also up to 2 bags of canned goods from the food pantry. OHH BABY!

(sux owners are urged to park on a hill when fully loaded with driver and bag of groceries to guarantee you get going in style)

So what are you waiting for? Put your order in today!

Apr 27 01:32 PM

[Tdot:]

Except the Puma is or was a small Euro Ford coupe right up till around '02. Not sure if Segway/GM would be able to actually use that name. Nice ... ehh ... thing though.

"When a problem comes along, Before the cream sits out too long, When somethings going wrong..."


On Apr 27 12:55 PM Whippet wrote:

> Here comes Congressional Motors. Put me on the waiting list for one
> of the first PUMAs to run off the line. Maybe by then they'll color
> it hot pink and rename it the Pelosi Panther- I can only hope.<br/>
>
> I agree with 402966- since when should the US taxpayer be on the
> hook for a failed company? The invisible hand has been amputated.

Apr 27 01:32 PM

[bricki:]

Seems unlikely since 90% of the bondholders have to agree to the equity swap.

Probably just another smokescreen to hide the real plan which is probably an even worse hit on the taxpayer.

Apr 27 01:39 PM

[Tricky:]

I'm generally a fan Tyler, but I have to agree with this comment


On Apr 27 12:41 PM User 402966 wrote:

> Why does the US taxpayer have any responsibility to the GM bondholder?
> The outrage here is NOT the "pillaging" of the bondholder - it is
> the use of taxpayer money to bail them out. A viable GM can emerge
> from bankrupcy even if current bondholders are wiped out.
>
> DL

Apr 27 01:45 PM

[JEM:]

No - the White House needs to keep the bondholders on board long enough to turn over operational control of the company to the UAW. This is all about saving union jobs, nothing more. If I were a bondholder I would vote no - and take my chances on the liquidation of assets.

Apr 27 01:52 PM

[epeon:]

Wait, you have doubts? Surely Pelosi, Reid, and Barney can design and specify the next generation of congressional motor cars far better then any euro or japanese based company. And, even if they don't, they can via congressional fiat (oopss, better be careful with that name) simply order the American public to buy that CM vehicle. Who cares about customer satisification? The public has not like congress for years, yet the public still buys congress' output?

Apr 27 02:50 PM

[Mad Hedge F...:]

they're fighting over the carcas. General Motors (GM) CEO Fritz Henderson made known his final, final, last ditch offer to avoid bankruptcy. Owners of $27 billion of bonds will get 10% of the company. The unions will get 39% of the company. Pontiac will be axed. Six more plants will be closed, laying off 21,000 workers. What will happen to 3,900 dealers is still up in the air. With the stock now at $2, Fritz has very little to bargain with. Whatever car business survives this won’t look anything like the GM we know. Why do I think we are headed towards a Ford (F) only nation?

Apr 27 04:31 PM

[yellowhoard:]

If GM recovers from this and one day begins to grow again, what kind of premium will they have to offer on their bonds to attract a buyer?

Indeed, what kind of premium will any unionized company have to offer?

Obama, has written a death sentence to future bond offerings of unionized companies.

Apr 27 04:50 PM

[cynnatalie2000:]

The problems at GM were caused by the UAW and the bondholders helped gm by extending needed credit.

Yet, Mr. Obama wants the UAW to get 10 billion in cash and 38% of the company for a questionable 20 billion dollar debt.

On the other hand, Mr. Obama wants the bondholders to receive 10% of the company for a clear 27 billion dollar debt.

Equity is simply not part of Mr. Obama's thinking.

Apr 27 11:02 PM

[Insiderman:]

I believe if the UAW wants to keep their charter at GM, then they should pony up the money for the equity needed for GM to reach viability. Their pension fund managers are WAY too smart to allow that kind of investment in the fund, but we taxpayers appear too dumb to stop it.

Tyler didn't mention the 1-for-100 reverse split PRIOR to exchanging stock for bonds:

"As described under “Description of the Charter Amendments,” prior to the distribution of GM common stock to tendering holders on the settlement date we intend to effect a 1-for-100 reverse stock split (the “reverse stock split”) of GM common stock. Unless otherwise indicated, all share numbers contained in this prospectus related to the exchange offers are presented without giving effect to the reverse stock split."

I couldn't tell whether the 10% equity stake in exchange for bonds factors in this reverse split.

Apr 28 10:22 AM

[John Slater:]

As we have said previously at mergers.com/toughtimes... the real issue of the whole bailout is why the Treasury has decided to bail out the bondholders of the banks rather than demand that they participate in the recapitalization of the banks. The current message appears to be "invest in bonds of companies that actually make or do something tangible (e.g. the auto companies for all their faults) and you're going to get shafted; invest in the bonds of the major banks and you're fully protected. What does that say for capital allocation going forward? Makes it sort of hard to bet on America's industrial resurgence.

Tyler, you're pretty good at ferreting things out. How about this one? The most remarkable aspect of the Times story yesterday is the disclosure that Geithner pushed for a complete federal guarantee of the unsecured debt of the banks. When he was told that Congress would never approve that, he clearly moved on to find other ways. A vast amount of this debt has now been put on the government's books through federal guarantees of bank bonds. Apparently the plan is to put a bunch more on the books through the PPIP guarantees from the FDIC. All of this is being done with very loose interpretations of regulatory authority. Once it's on the books, Congress will have no option but to bail out the guarantees rather than bankrupt the FDIC and the Fed. Sounds like a pretty massive usurpation of power to me. In another era the Supreme Court would be hearing this case. Something has happened in the body politic for this to get so far without anyone pursuing this to its logical conclusion.

Apr 28 12:46 PM

[altaman:]

I perfer the CM POS 2011 which is a planned follow-on to the SUX 2010 the includes the selectable AutoDrive 9000 of optimal carbon savings (think Flintstones).


On Apr 27 01:32 PM yellowhoard wrote:

> Coming Soon From Congressional Motors!
>
> The CM SUX 2010. Weighing in at well over 800 pounds, the muscular
> SUX is the car to get you from here to there!
>
> 85 wild horses will squire to the foodlines in the kind of style
> that one can only expect from CM.
>
> Got groceries? The CM SUX has plenty of space for not only you the
> driver, but also up to 2 bags of canned goods from the food pantry.
> OHH BABY!
>
> (sux owners are urged to park on a hill when fully loaded with driver
> and bag of groceries to guarantee you get going in style)
>
> So what are you waiting for? Put your order in today!

Apr 29 05:06 PM