GM Bondholders Think They Deserve More Equity

Sorry, you’re going to put up with another GM restructuring story. Think positive, there’s only about 30 days left to go.

Anyway, the bondholders plan to present a counteroffer to the company and government that is shall we say a bit different than what’s on the table.

From the WSJ, here’s the new proposal:

The bondholder committee, which represents about 20% of the debt outstanding, said its counteroffer would save GM $10 billion in cash. Under it, GM would issue new stock and give 41% of it to the UAW, 51% to the bondholders and 1% to common equity holders.

The government would not get equity under this scenario because it wouldn’t need to reduce any of GM’s loans. Unsecured bondholders would likely reduce their entire claim on the auto maker under this plan.

I know, the percentages don’t add up. As soon as I can get more reliable figures I’ll update this. Nevertheless, here is what the government originally offered:

The committee’s offer, to be presented during a Thursday meeting with the task force, comes after GM offered bondholders 10% of the company’s stock if nearly all of the $27 billion in unsecured debt is retired by late May.

GM’s debt-for-equity exchange was initiated Monday in an effort to avoid a $1 billion debt payment due June 1.

GM’s debt exchange is part of a wider recapitalization that would give 39% of the company’s equity and about $10 billion in cash to the United Auto Workers union to restructure union health-care obligations. The government, which has lent GM $15.4 billion, would get 51% of GM stock under GM’s deal in return for a 50% reduction in the money owed to taxpayers.

So the bondholders want to go from 10% to 51% in exchange for cancelling most of their debt. They want to cut the union in for another 2% but the union has to give up a $10 billion payment to its pension plan and the government gets nothing but it doesn’t have to take a haircut either.

Now all of us are beginning to understand the Kabuki dance that accompanies these things so we know this isn’t the final final. But there are some interesting twists here.

As a taxpayer I kind of think I’d like to see the government come out of this with a senior, hopefully secured loan, as opposed to equity. If the bondholders’ proposal pencils out it might be a fairly neat solution and has the added benefit of putting to rest the nationalization argument. Assuming that all sides really want that issue put to rest.

There’s the rub. If this is a real offer, if it is economically viable and if it gains traction will the government walk away. They should if it’s a better deal for the taxpayer. If they don’t then all of the assertions that they don’t want to run GM and will get out as soon as they can may need to be questioned.

The UAW probably won’t like it. I’m sure they would feel a lot more comfortable negotiating future labor contracts with the administration than private management but this isn’t about making them comfortable it’s about saving some of their jobs. 

I suspect that if we watch these negotiations closely over the next few weeks we might learn quite a lot about the real agendas of the various participants.

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