Uncle Sam Gives UAW $10b for VEBA (17.5% of GM), $2.5b Cash, $585m Per Year
The Wall Street Journal reports the terms of the United Auto Workers (UAW) deal with the feds re: their payoff to join post-bankruptcy “good” GM. Uncle Sam will “contribute” $10 billion worth of stock to the union’s Voluntary Employee Beneficiary Association (VEBA) health care superfund, paying off half of GM’s unfunded obligations in one fell swoop. The Treasury Department will also give the UAW a $2.5 billion promissory note. GM (i.e., the federal government) will pay off the note in cash, in three installments (2013, 2015, and 2017). And just in case that’s not enough to entice the union to join “good” GM, the UAW will also receive 17.5 percent of the new post-C11 GM (no longer a controlling interest) AND stock warrants for an additional 2.5 percent of the reorganized company. The $6.5 billion in preferred stock includes a nine percent cash dividend—that will pay out $585 million annually. Saying that, this is all subject to a federal bankruptcy judge’s approval.
I nominate " superbadd75's " post as the post of the month, it says it all. So, where are Companies going to find investors in the future? Investors used to buy a bond in no small part because in law, it had the security of being in priority to other forms of debt. Without that there is no reason to accept inferior yields or more risk, or indeed even bother investing there at all. Now that Ohobo is about to do an end run around the law and given too much of a percentage to his friends, openly challenging the courts to defy him, why would anyone buy any corporate bond any more? And the jury is still out on whether the Chinese will invest in bonds, government or corporate, and if they do, how much higher returns will they insist on receiving in this revised 'landscape'?
This whole thing sickens me. I'm just hoping for some political change in 2010 and a bigger one in 2012. If not, we are well and truly f'ed! High hopes, low expectations.
Without a subscription, I can't read the WSJ article. But I think the $10 billion reference is the existing amount in the GM VEBA that was originally to be turned over the beginning of 2010. Does the article specifically state the the Treasury is going to supplement that fund with another $10 billion?