Let me start by saying that GM will probably file Chapter 11 bankruptcy - either next week or sometime in the next five weeks.
They clearly prefer not to file. A bankruptcy filing for GM will create a lot of problems, many more than the Chrysler filing. There are moms and pops and pension funds who own the debt. Not just greedy speculators, the Obama term for the Chrysler secured lenders. These lenders might sue and get a court to grant an injunction.
I have recommended purchase of two different GM bonds that are $25 par value. One is the GRM which matures on June 1, 2009. This is the one that GM says it will not pay at maturity and will cause them to file bankruptcy. Yesterday we got preliminary results on the offer GM made in it's S-4 filing and those results indicate that "single digits" of bondholders tendered for the offer that required 90% acceptance.
The other bonds are part of a group and include symbols like BGM, XGM, GPM, GXM, GMW, RGM, GMS-OLD, HGM. These trade around $1.75 and have yields of around 100% if GM doesn't file. Remember, I started by stating that GM will probably file.
If GM doesn't file any of these will be a home run. In the upper decks. If GM does file, then the bondholders will go through bankruptcy and wind up with stock in the new GM. I think that stock will be worth more than what a buyer pays for these bonds.
Holders of GM common stock should sell the stock tomorrow and buy whichever of the bonds listed above trades at the lowest price. The stock will have some future value (think about the tax loss carry forward) but the bonds will fare better.
I do know about the proposed 1 for 100 reverse split. That is really an accounting issue and doesn't affect the bonds negatively. It may actually create some demand if GM remains in the Dow Jones Industrial Average and ETFs have to buy more shares.
Disclosure: Long BGM