Why GM's Debt Swap Won't Work

Edward Niedermeyer
by Edward Niedermeyer

GM’s major bondholders are asking for a 58 percent stake in a reconstituted General Motors, but there are a number of challenges facing any debt-swap to relieve GM’s crushing $28b debt load. First of all, the Freep reports that some $2.7 billion worth of GM debt is covered by credit-default swaps. Since this means that ten percent of GM’s bondholders stand to receive face value for their bonds, the odds that 90 percent of GM’s creditors will take up any haircut offer seem slim. Add a bunch of angry, populist small bondholders to the equation, and you have yet another obstacle to the restructuring goal.

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  • Ronnie Schreiber Ronnie Schreiber on Apr 30, 2009

    Those independent bond holders may be the last true capitalists in America.

  • U mad scientist U mad scientist on Apr 30, 2009
    CDS’s are legitimate financial tools. That's true. However it was the lack of regulation (of them and also the instruments that they were used on) that made them explode in popularity. It's quite telling that this kind of money follows a lawless enviro like when credit derivatives were some of the last to lack transparency.
  • Acurota Acurota on Apr 30, 2009

    I sympathize with their plight... But, If GM's debt haircut is going to hurt them as much as they would have us believe, they did not diversify their assets, or they're lying about how un-diversified they are.

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