GM filed an 8k Tuesday evening with new details from their restructuring plans.
In connection with the foregoing, we are currently in discussions with the U.S. Department of the Treasury regarding the terms of a potential restructuring of our debt obligations owed to the U.S. Treasury, pursuant to which the U.S. Treasury would exchange at least 50% of such debt for shares of GM common stock. We have not reached an agreement with respect to a U.S. Treasury Debt Conversion.
This notice and the accompanying Information Statement are being furnished to our stockholders with respect to action that may be taken in connection with this restructuring by the U.S. Treasury (or its designee)... effect a 1-for-100 reverse stock split of GM common stock, whereby each 100 shares of GM common stock registered in the name of a stockholder at the effective time of the reverse stock split will be converted into one share of GM common stock.
The Treasury was issued a warrant for 122MM shares of GM when they signed on to provide $13B of financing (fully drawn). Does the reverse split price (if consummated today at afterhours price) of $166 on 122k shares make the deal more promising for the government? That means 2.25 shares for each $1,000 for the bondholder - 2.25 shares!
From another 8k filed Tuesday:
GM Canada Limited (GMCL): With certain exceptions, GMCL’s obligations under the Loan Agreement are secured by a first lien on substantially all of its unencumbered assets, a second lien on certain of its assets previously pledged as collateral under an existing credit facility, and a first lien on its ownership interest in the Subsidiary Guarantors and in a portion of General Motors Product Services Inc.
The Loan Agreement has been guaranteed by the Parent, and by 1908 Holdings Ltd., Parkwood Holdings Ltd., and GM Overseas Funding LLC, each of which is a subsidiary of GMCL (collectively, the “Subsidiary Guarantors”). The Parent’s guarantee of GMCL’s obligations under the Loan Agreement is secured by a lien on the equity of GMCL. Because 65% of the Parent’s ownership interest in GMCL was previously pledged to the United States Department of the Treasury (the “U.S. Treasury”) under the U.S. Loan and Security Agreement dated as of December 31, 2008 by and between the Parent and the U.S. Treasury (the “U.S. Loan Agreement”), in connection with the Loan Agreement EDC received a first lien on 35% of the Parent’s equity interest in GMCL and a second lien on the remaining 65%. The Subsidiary Guarantors pledged their respective assets to secure their guarantee of the Loan Agreement.
Now that they have further pledged GM's assets, did they receive adequate compensation for the guarantee and lien? If they file for bankruptcy, it is not unreasonable to expect a challenge to this as a fraudulent coveyance of those assets.
Fact is, indeed, stranger than fiction. Wait for the bondholder call to judge the tone. While the company states they need 90% (knowing well that retail participation will be difficult), they can force the modification/exchange with less (as I have posted before) and certain holders are conflicted. This will be even more interesting to watch than the Chrysler debacle (judicial and otherwise) as there will be multiple layers of conflicts (TARP loans, PPIP outlook and promising returns...).
Disclosure: long GM bonds
