GM Bondholders Raise Concerns

(Update) March 30, 2009

The committee representing General Motors bondholders and its advisers convened a conference call on Monday to discuss the next steps for the automaker's debt restructuring.

GM has offered bondholders 8 cents on the dollar in cash, 16 cents on the dollar in new, unsecured debt; and a 90 percent stake in the automaker.

With about $28 billion in debt to bondholders, the GM offer made to bondholders about a week ago would translate into $2.2 billion in cash, $4.3 billion in debt and an additional stock-based payout in a recapitalized company that would all but wipe out current stockholders.

March 27, 2009

Bondholder representatives stated General Motors Corp.’s formula to swap debt for equity is likely to lead to a bankruptcy.  GM has over $27 billion in bond debt held by investors who have been asked to surrender a claim on two-thirds of the principal in exchange for equity in a recapitalized company or another payout at near 33 cents on the dollar.

Bondholder advisers are balking at those conditions, which GM and the federal government agreed to in December when the Treasury gave the largest U.S. automaker $13.4 billion in loans to prevent a bankruptcy.

“We believe that, unless the framework we suggested is utilized, the restructuring currently contemplated will not achieve the required level of acceptance to succeed on an out- of-court basis,” the advisers wrote in a letter yesterday to Treasury Secretary Timothy Geithner and representatives of President Barack Obama’s auto task force.

The automaker faces a maturing set of bonds worth some $1 billion in June and will have to get thousands of investors to agree to swap out of their holdings to make any deal work.

Sources and Related Articles

• GM Bondholders Back Obama’s Demand for Deeper Cuts
• GM bondholders meet to weigh autos plan
• GM has given new offer to bondholders-source
• GM Bondholders Say Debt-Swap Plan Risks Bankruptcy (Update2)

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