Thursday, March 5, 2009

GM Narrowly Avoids Event Of Default On Term Loan

General Motors, which today received a going concern opinion from its auditors who had somehow missed putting that language into the doomed company's 10-K over the past several years, was much closer to bankruptcy than the general media will have you believe. As a result of the going concern statement, the company was in dire need of an amendment to its credit facility which would prevent this from translating into a full blown event of default as per the old language.

Of course, in negotiations late last night as debtwire reports, lenders represented by Ropes and Gray demanded and received and arm and a leg: in exchange for agreeing to not leave the majority of Obama voters unemployed, the bank group managed to increase the collateral coverage covenant in the loan from 2.5x to 3.25x and also cranked up their interest from L+237.5 to L+600, while putting in place a 2% LIBOR floor, AND lastly getting a 200 bps amendment fee... Obviously GM thought this was a kinda big deal to agree to all these usurious demands. Most importantly, GM was forced to abandon its course of creating junior liens on the secured collateral pool. As per previous iterations of the agreement, GM would have allowed a third party, including the government, bondholders, or the UAW to obtain a junior lien. After the going concern fiasco, bondholders are now even worse off as before they could have at least had a second lien below the Term Loan for some negotiation leverage. As it stands, they are at the mercy of Steve Rattner and the UAW's "concessions." Sphere: Related Content
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