GM Bondholders' Counteroffer: Give Us the Company, Then

by Robert Farago

April 30th, 2009 3:04 PM

gm bondholders counteroffer give us the company then

Bloomberg reports that GM bondholders have made a counter-offer to the feds’ debt-for-equity swap proposal. Two days ago, The Presidential Task Force on Automobiles (PTFOA) offered the bondholders a 10 percent piece of a newly reconstituted “good” GM in exchange for $27 billion of paper. The bondholders reckon that should be . . . wait for it . . . 58 percent. To avoid C11, GM must convert 90 percent of its debt into equity. So, forget it. “Old” GM’s toast.

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JeremyR on Apr 30, 2009

Well, certainly cash is preferable to stock in this case. It's hard to argue with that. On the other hand, if the stock is in fact worth squat, then it shouldn't be that big of a deal for the UAW's pile of squat to be allocated proportionately to the bondholders'.

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Pch101 on Apr 30, 2009
On the other hand, if the stock is in fact worth squat, then it shouldn’t be that big of a deal for the UAW’s pile of squat to be allocated proportionately to the bondholders’. It's irrelevant. The proportions don't mean anything, because the stock classes are not equal. Fiat's 20% is vastly better than the VEBA's 55%. It isn't about percentages, but controls, cash flow and claims to future proceeds. Ideally for us, the bondholders would convert to equity and take zero cash. Ideally for the bondholders, they would be paid par. Somewhere in the middle of that is the place where things will end up. The best thing for the government to do is to offer very little, and start compromising from there. That is what they're doing, and it makes sense.

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JeremyR on Apr 30, 2009

I don't know, I haven't seen anything to indicate that there are different classes of stock proposed. In the case of FIAT/Chrysler, an article indicated that FIAT would get 20% "by value and voting" (or something to that effect) but did not mention how the other shares would work. I guess we'll only know for sure once the ink is dry on the court orders. Cheers, Jeremy

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Pch101 on Apr 30, 2009
I haven’t seen anything to indicate that there are different classes of stock proposed. The press release implies it throughout. 55% of share ownership is not providing 55% of control, and you can tell from the other terms that the priorities aren't pro rated, either. The 55% is only going to be worth something if the company goes public. That ball will be in Fiat's court.

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