The Presidential Task Force on Automobiles (PTFOA) wants GM to get its NSFW together by June 1. To that end, the PTFOA is pressuring GM’s bondholders to take The Mother of All Buzz Cuts. As The Wall Street Journal reports, that means no cash or federal guarantees. “The Treasury Department is pushing GM to offer its bondholders, who are owed $29 billion, a small portion of shares in the company. That’s a sharp cut from a bond-exchange offer GM made two weeks ago, which included about $8.5 billion in cash and new debt in the company as well as 90% of GM’s stock, said people familiar with the terms. The Treasury, which has pumped $13.4 billion into GM to keep it afloat [plus $4.4 billion to come in June], believed the earlier plan was too generous to bondholders, said people familiar with the matter.” Well then, the PTFOA can put GM in C11 and be done with it, right? I mean, what pressure can they possibly bring to bear on GM’s bondholders now that water-boarding is illegal? Actually, this is a post-C11 wrangle.
These bondholders also are raising concerns that the bankruptcy revamp GM is considering may be unfair to investors and unions, said these people. The plan would split the company into a “New GM” containing its desirable assets, such as Chevrolet and Cadillac, and an “Old GM” holding troubled brands such as Saturn and the auto giant’s union health-care liabilities . . .
The bondholders likely will struggle to figure out how to value the latest debt-exchange offer, said a person familiar with the matter, because it isn’t clear what the government will do about the $13.4 billion it has lent GM. In a bankruptcy scenario, the government could reduce its debt in the company by transferring some or all of it to the “Old GM,” said this person.
So the ultimate threat isn’t bankruptcy, but the possibility that GM goes into C11 and the Treasury dumps the bondholders’ debt into “old” GM, where it disappears forever. In a proper (i.e., judicial) bankruptcy, that couldn’t happen. With the PTFOA sure to create whatever type of C11 it chooses, the bondholders could be completely stiffed.
That’s the kind of thing that happens when the US government gets into the car biz.