GM Bondholders Reject Exchange Plan, Bankruptcy Now Looks Certain
GM will likely file bankruptcy in the next 48 hours
By Brendan Moore
GM has been trying to get bondholders to participate in a debt-to-equity swap, and those efforts were pronounced a failure late yesterday. GM hoped that 90% of the bondholders would forgive debt in exchange for a 10% ownership in the restructured company. Reports indicate that interest in the plan among the target population was approximately 8% of all the bondholders.
A resounding defeat, but it’s worth noting that no one thought that GM’s plan would succeed. It is obvious that GM was merely going through the motions of introducing the exchange offer and then recording the results so that they could get on with Plan B.
GM did reach an agreement with the UAW today that greatly reduced the company’s labor and pension/healthcare costs. Which, just as a heads-up, is exactly what happened immediately before Chrysler filed bankruptcy. In addition, and perhaps more importantly, the new agreement restructured GM’s payments to the trust fund which funds retiree health care.
The UAW did not really have much choice. They certainly didn’t hold back in their assessment of GM.
“GM today stands at the very brink of bankruptcy,” the union stated in a handout distributed to GM workers that was designed to inform members of the new terms of the labor agreement and the trust fund payments.
The GM shareholders that have remained were treated even worse in the GM offer – their outstanding shares would be a mere 1% of the proposed new company. If GM declares bankruptcy, their shares will have no value.
There is some good news for GM’s secured lenders, however. According to the Wall Street Journal, the bankruptcy plan that is being finalized as I type this grants the secured lenders a full recovery of their various loan amounts.
The plan also calls for GM to emerge from bankruptcy with approximately $11 billion USD in debt. GM currently has around $88 billion USD of debt.
The US Treasury plans to inject another $50 billion dollars into GM to get it through bankruptcy, and as it has been noted before, will then own 70% of GM after a successful discharge of the federal bankruptcy.
Bankruptcy would also allow GM to void any dealer agreements it wished; a definite plus for the company’s plans to cut its dealer ranks. Without the protection of federal bankruptcy, GM would be subject to state dealer franchise laws that contain onerous terms for any manufacturer that terminates a dealer franchise agreement.
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