PTFOA Bribes Bondholders With 15% Extra Stake in Post-C11 GM
As GM augers-in for its Chapter 11 face plant, the Presidential Task Force on Autos (PTFOA) has been busy cutting back-room deals with bondholders. Reuters reports that the feds are getting their proverbial ducks in a row for a fast-track fustercluck—sorry, reenergized company. “Under the proposed deal, which is supported by major institutional creditors holding about a fifth of its debt, bondholders representing $27 billion in debt would be offered 10 percent of a reorganized GM — the same stake they had been offered previously. In a sweetener, bondholders would also receive warrants to acquire another 15 percent of the equity in the new company, provided they support a quick Treasury-backed sale process similar to one now being used for rival Chrysler.” GM has released a statement on the new plan, removing any last traces of doubt that it’s headed for the world’s largest bankruptcy proceeding . . .
The U.S. Treasury proposal announced today provides incentives for GM’s unsecured bondholders to support GM’s restructuring efforts in the event GM decides to pursue a 363 sale as part of a bankruptcy proceeding. Implementation of this proposal would result in a New GM with a healthy balance sheet, putting the new company on a clear path toward long-term viability and success. GM appreciates the unwavering support of the U.S. Treasury and the President’s Task Force on Autos and thanks the unofficial committee of bondholders for their support of the proposal.
So, did the PTFOA express its “support” for “new” GM with a threat or a promise? Yes!
Bondholders would have until 5 p.m. EDT on Saturday to indicate they would not oppose the sale process as planned, GM said. If bondholders do not provide those indications, common equity and warrants “would be substantially reduced or eliminated.”
Which tells us that GM—well, the PTFOA—has decided to wait ’til Sunday to file for bankruptcy. Anyway, needless to say, the majority of GM’s bondholders (some of which are into the TARP program for billions) immediately caved.
A committee representing the major bondholders said they supported the revised offer as the “the best alternative … in the current difficult and dire situation.”
What else could they say?
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guyincognito : Well said. I’m still trying to grasp how the government gets 72% the union gets 17% and the bondholders get 25% of the new company. -- Treasury 72% Shareholders 1% Union 17% + $10 billion cash and notes Bondholders 10% plus warrants of 15% to buy basically from Treasury 72+1+17+10= 100 Treasury is is largest lender and will provide DIP financing, effectively making this a huge cash burn. They are arrogant and have tried to control the bond market. The bond market(BM) is bigger than the Treasury actually and the BM is saying screw you Obama to union workers since Obama is destroying contract rights by disregarding secured creditors. Look at the spreads in the BM, industries with union selling bonds are not being bought. The BM will not buy GM bonds, the company is completely dead thanks to Obama and his union hardon. He can blame hedgefunds all he wants, screwing up the market rules for social justice for unions on this scale is stupid if in the long run there is a net loss. Watch the interest rates march up now. The Treasury's bond market bubble burst last week. Depression full steam ahead....