GM Is Officialy Wiping Out Common Shareholders

In a filing today with the SEC, GM announced that it would issue 60 billion new shares, in order to "pay off" debts to the government, its bondholders and the UAW. And since the government would end up being the majority owner, only the approval of the US Treasury would be needed (talk about a gating factor).

As a result of the flood of new shares, existing shareholders, much as previously expected, would end up owning 1% of the pro forma equity, and assuming straight mathematic dilution, the shares which closed at $1.85 would be worth a little over 1 cent.

Specifically, the actions contemplated by the filing are as follows:

• Increase the number of authorized shares of GM common stock to 62 billion shares;
• Reduce the par value of GM common stock from $1 2/3 per share to $0.01 per share; and
• Effect a 1-for-100 reverse stock split of GM common stock, whereby each 100 shares of GM common stock registered in the name of a stockholder at the effective time of the reverse stock split will be converted into one share of GM common stock.

So much for all mom and pops who bought GM stock today hoping the rolling squeezes would raise it to $10/share before it crumbled to 0... well, actually that may very well happen: no clue yet how "liquidity providers" decided to spin this from a megasqueeze point of view.

Another interesting part of the filing discussed the provisions for the exchange offer with existing bondholders, which has all the makings of another attempt by Rattner to explore his amazing persuasive skills.

Exchange Offers. As a means to achieve the debt reduction objectives set forth in our Viability Plan, we have commenced exchange offers, whereby we are offering GM common stock in exchange for any and all of the outstanding GM Public Debt (the “Exchange Offers”). The aggregate principal amount outstanding of the GM Public Debt is approximately $27.2 billion as of April 22, 2009. Our initial Viability Plan called for a two-thirds reduction in the outstanding GM Public Debt through conversion of GM Public Debt into equity, debt and/or cash as required by the First U.S. Treasury Loan Agreement. However, we currently believe, and our current Viability Plan assumes, that at least 90% of the aggregate principal amount (or, in the case of discount notes, accreted value) of the outstanding GM Public Debt (including at least 90% of the approximately $1 billion aggregate principal amount of our outstanding 1.50% Series D Convertible Senior Debentures due June 1, 2009 (the “Series D Notes”)) will need to be tendered in the Exchange Offers (or, with respect to GM Public Debt denominated in Euros or Pounds Sterling, called for redemption pursuant to an early call option sought to incorporated by amending the instruments governing such debt) in order to satisfy the U.S. Treasury Condition (as defined below). Whether this level of participation in the Exchange Offers will be required (or sufficient) to satisfy the U.S. Treasury Condition will ultimately be determined by the U.S. Treasury. The actual level of participation in the Exchange Offers may be different than what we have assumed, and this difference may be material.

The Exchange Offers are subject to various conditions, including, among others:

• the results of the Exchange Offers shall be satisfactory to the U.S. Treasury, including in respect of the overall level of participation by holders of GM Public Debt in the Exchange Offers and in respect of the level of participation by holders of the Series D Notes in the Exchange Offers (the “U.S. Treasury Condition”);
  
  
• all reviews and approvals required pursuant to the terms of the U.S. Treasury Loan Agreements shall have been completed and received and the Government Viability Certification to be delivered by the President’s Designee pursuant to the First U.S. Treasury Loan Agreement shall have been delivered;
  
  
• the U.S. Treasury Debt Conversion shall have been completed, pursuant to which the U.S. Treasury (or its designee) shall have been issued at least 50% of the pro forma GM common stock in exchange for (a) full satisfaction and cancellation of at least 50% of our outstanding U.S. Treasury Debt at June 1, 2009 (such 50% currently estimated to be approximately $10 billion) and (b) full satisfaction and cancellation of our obligations under the warrant issued to the U.S. Treasury, and we shall have used our best efforts to enter into agreements with respect to the foregoing;
  
  
• the U.S. Treasury shall have provided commercially reasonable evidence of the U.S. Treasury Financing Commitment described below under “—Future Liquidity Requirements and Requests for Additional Funding,” and the U.S. Treasury (or its designee) shall have agreed to deliver a binding written consent in respect of a portion of the common stock it is to receive in connection with the U.S. Treasury Debt Conversion authorizing the Charter Amendments;
  
  
• binding arrangements in respect of the VEBA modifications (including judicial and regulatory approval thereof, if any), on such terms as shall be satisfactory to the U.S. Treasury, shall have been executed by all relevant parties, pursuant to which (a) at least 50% (or approximately $10 billion) of the settlement amount (described below under “—VEBA Modifications”) will be extinguished in exchange for GM common stock and (b) cash installments will be paid toward the remaining settlement amount over a period of time, which together have a present value equal to the remaining settlement amount, and we shall have used our best efforts to enter into arrangements with respect to the foregoing;
  
  
• binding agreements in respect of labor modifications, on such terms as shall be satisfactory to the U.S. Treasury, shall have been executed by all relevant parties; and
  
  
• the aggregate number of shares of GM common stock issued or agreed to be issued pursuant to the U.S. Treasury Debt Conversion and the VEBA modifications shall not exceed 89% of the pro forma outstanding GM common stock (assuming full participation by holders of GM Public Debt in the Exchange Offers).

All conditions to the Exchange Offers must be satisfied or waived prior to the expiration of the Exchange Offers. These conditions are for our sole benefit, and we may assert them or waive them in whole or in part at any time prior to the expiration date in our sole discretion. We have not made a decision as to what circumstances would lead us to waive any such condition, and any such waiver would depend on circumstances prevailing at the time of such waiver.

And for all those curious about what the next financial black hole is, now that AIG is 'actively rumored' to be massively profitable this quarter, check out the following fun section outlining expected liquidity, and how GM was actually dead serious when it said it won't need any more money in March.

Future Liquidity Requirements and Requests for Additional Funding

In order to execute our current Viability Plan, we currently forecast a need for U.S. Treasury funding totaling $27.0 billion, representing the $22.5 billion requested in our February 17 Viability Plan under our baseline scenario, plus an additional $4.5 billion needed to implement incremental restructuring actions, cover higher projected negative operating cash flow primarily due to lower forecasted vehicle sale volumes in North America, and to compensate for lower than originally forecasted proceeds from asset sales and other sources of financing, including Department of Energy Section 136 Loans for production of advanced technology vehicles and components. Our Viability Plan currently assumes that we receive $5.7 billion of Section 136 Loans and an additional $5.6 billion in funding from foreign governments.

As discussed above, the U.S. Treasury agreed to provide us with $2.0 billion of additional working capital loans and we borrowed $2.0 billion on April 24, 2009. As part of the compensation for these loans, we issued to the U.S. Treasury a promissory note in an aggregate principal amount of $133.4 million. We currently expect that we will need an additional $2.6 billion of working capital loans prior to June 1, 2009. We cannot assure you that the U.S. Treasury will provide the additional $2.6 billion of loans. If we were to receive the additional $2.6 billion of loans, we expect we would be required to issue to the U.S. Treasury a promissory note in an aggregate principal amount of $173.4 million as part of the compensation for these loans.

If we receive the additional $2.6 billion of loans and issue the additional $173.4 million promissory note to the U.S. Treasury in connection with those loans, as of June 1, 2009 we would have received loans from the U.S. Treasury of $18.0 billion (excluding the $884.0 million we borrowed to purchase additional membership interests in GMAC) and issued promissory notes in an aggregate principal amount of $1.1 billion as part of the compensation to the U.S. Treasury for these loans, and as a result, the total outstanding U.S. Treasury Debt would be $20.0 billion. Under the terms of the U.S. Treasury Debt Conversion, at least 50% of the U.S. Treasury Debt outstanding at June 1, 2009 (including the $884.0 million we borrowed to purchase additional membership interests in GMAC and the other promissory notes we issued to the U.S. Treasury as part of the compensation for the loans provided to us), would be exchanged for new shares of GM common stock.

In our Viability Plan, we currently forecast that, after June 1, 2009, we will require an additional $9.0 billion of U.S. Treasury funding. We expect that if we were to receive this additional funding, we would be required to issue to the U.S. Treasury promissory notes in an aggregate principal amount of $600.3 million as part of the compensation for this funding. We have proposed that the U.S. Treasury commit to provide this additional $9.0 billion funding, together with the additional $2.6 billion referred to above, to us under, or on terms similar to those under, the existing U.S. Treasury Loan Agreements (we refer to the commitment to provide this total of $11.6 billion of additional financing as the “U.S. Treasury Financing Commitment”). We cannot assure you that the U.S. Treasury will provide the additional $2.6 billion and $9.0 billion of funding. The receipt of the U.S. Treasury Financing Commitment on commercially reasonable terms is a condition to the Exchange Offers. Assuming the exchange of 50% of our outstanding U.S. Treasury Debt at June 1, 2009 (such 50% currently estimated to be $10.0 billion) and our receipt of the additional $9.0 billion, our total outstanding U.S. Treasury Debt would be $19.6 billion.

So, in recap, just in case someone is still confused about what all this means, Government Motors provides even a summary for that:

Very Substantial Dilution to Existing Stockholders

The Restructuring Transactions will cause very substantial dilution to existing holders of GM common stock. As of March 31, 2009, there were 610,505,273 shares of GM common stock outstanding. Assuming full participation in the Exchange Offers, the aggregate amount of GM common stock issued in connection with the Exchange Offers will be approximately 6.1 billion shares, which, based on the number of shares of GM common stock outstanding as of March 31, 2009, would represent approximately 10% of the pro forma outstanding GM common stock; the aggregate amount of GM common stock issued to the U.S. Treasury (or its designee) pursuant to the U.S. Treasury Debt Conversion and to the New VEBA pursuant to the VEBA modifications will be approximately 54.4 billion shares, which would represent approximately 89% of the pro forma outstanding GM common stock, with the final allocation between the U.S. Treasury (or its designee) and the New VEBA to be determined in the future (however, as a condition to closing the Exchange Offers, subject to the overall limit of approximately 89% of the pro forma outstanding GM common stock to be issued to the U.S. Treasury (or its designee) and the New VEBA in the aggregate, the U.S. Treasury (or its designee) will hold at least 50% of the pro forma outstanding GM common stock); and existing GM common stockholders would hold approximately 1% of the pro forma outstanding GM common stock. We determined the foregoing GM common stock allocations following discussions with the U.S. Treasury where the U.S. Treasury indicated that it would not be supportive of higher allocations to the holders of GM Public Debt or to the existing GM common stockholders.

Bankruptcy Relief

In the event that we do not receive prior to June 1, 2009 enough tenders of GM Public Debt, including the Series D Notes, to consummate the Exchange Offers, we currently expect to seek relief under the U.S. Bankruptcy Code. This relief may include (i) seeking bankruptcy court approval for the sale of most or substantially all of our assets pursuant to section 363(b) of the U.S. Bankruptcy Code to a new operating company, and a subsequent liquidation of the remaining assets in the bankruptcy case; (ii) pursuing a plan of reorganization (where votes for the plan are solicited from certain classes of creditors prior to a bankruptcy filing) that we would seek to confirm (or “cram down”) despite the deemed rejection of the plan by holders of GM Public Debt; or (iii) seeking another form of bankruptcy relief; all of which involve uncertainties, potential delays and litigation risks. We are considering these alternatives in consultation with the U.S. Treasury, our largest lender.

But all is good, green shoots are sprouting, people are buying Prada bags, not every single store on Madison avenue has a For Lease sign on it, everyone is getting massively diluted, GM stock should go up 10x tomorrow. Sphere: Related Content

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GM Bondholders Said To Find Debt Offer Unlikely To Succeed

Bloomberg out on the issue:

General Motors Corp. bondholders find the automaker’s offer to exchange their $27 billion in debt for equity unlikely to succeed, according to a person familiar with the committee representing creditors.

That’s because the offer by GM, the biggest U.S. automaker, treats bondholders worse than other claimants, such as unions, said the person, who declined to be identified because the discussions are private. At least 90 percent in principal amount of the notes must be exchanged by June 1 to satisfy the U.S.Treasury and avert a bankruptcy, GM said today in a statement.

Bondholders are being asked to swap all their claims for 10 percent of the equity in the reorganized company. The offer is contingent on cutting at least half of GM’s $20.4 billion of obligations to a United Auto Workers retiree-medical fund, known as a Voluntary Employee Beneficiary Association, through a debt- for-equity exchange that would give the VEBA as much as 39 percent of common stock in the Detroit-based carmaker.

“This is an offer that’s designed to fail,” said Kip Penniman, an analyst at fixed-income research firm KDP Investment Advisors in Montpelier, Vermont. “To get 90 percent of them to agree to such a deal where there’s no cash, no other debt and pure equity while leaving the union VEBA arrangement unchanged from previous considerations is absurd.”

Another interesting aspect, as pointed out by a reader, is that the GRM Pfds (the June 1 maturity Zero Hedge has discussed previously) are not referenced in the S-4. Susquehanna Intl Group (SIG) which allegedly owns 47% of the issue has veto power on the deal, and while Citi has 16% ownership of the GTMs, but is already a government company, will vote for anything the administration regurgitates. As the preferreds are 1% of Susquehanna's holdings (10th largest position), it is likely that the fund will work out a preferential outcome for itself, and other GRM holders as well as generate some political brownie points. The alternative would likely be unthinkable for SIG and others, as the loss from a pari passu treatment of GRMs with other debt would be staggering. Sphere: Related Content

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GM Is In "Defacto Default"

Egan Jones calling it like it is:

Defacto default - bondholders are offered just 10% of the Co.'s equity in exchange for their $27B in debt while the gov't and VEBA will receive 89% of the equity. Bond holders will receive accrued interest in cash for tendered debt. The offer is contingent upon agreements being reached with the UAW and VEBA and a 90% tender rate. GM has announced that it will not pay its $1B in interest payments due June 1st. GM has received $15.4B from the gov't and could get another $5B shortly. While GM has developed a plan for auto sales closer to 10.5M units per year, were not convinced that's low enough given the current 9M unit sales and the likelihood of a much smaller Co. after restructuring.

It is odd that the administration is set on continuing its course of antagonizing creditors at the expense of bloated pension plans and workers. While Zero Hedge does not have any particular insight, bondholders are likely not going to be too happy to get the shaft, especially after the UAW (at least optically) receives yet another sweetheart deal, and, as always, bondholders have not been consulted on this development. A 90% tender acceptance ratio is likely a pipe dream but at least Obama can tell his Detroit and rust belt voters he did what he could, and it was Wall Street yet again that derailed the plan and was responsible for the massive job losses about to ensue. Scapegoat the creditors: nothing but politics.

It is frightening that Obama et al are set on perpetuating the divergence of Wall Street vs Main Street. As this split reaches a crescendo, and the hatred by the majority toward the minority spikes, keep your eyes peeled for many more amusing disclosures, hearing and hand spankings out of Barney Frank and the insane clown posse.

Update: an observant reader brings up the Bill Gross holdout clause in the S-4:

“GM believes that at least 90% of the outstanding notes….will be needed to be tendered…in order to satisfy the US Treasury condition…Whether this level of participation…will ultimately be required to satisfy the US Treasury condition will ultimately be determined by the US Treasury”

Let the taxpayer funded bailout of the UAW continue. Sphere: Related Content

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GM Files Updated "Restructuring" S-4

Link here. Perusing the bondholder pillaging plan now. Looks like GM is being nationalized (at least U.S. getting majority stake).

Summary:

- U.S. would get 51% pro forma stake with debt conversion
- Bondholders would represent 10% of new pro forma stock
- Existing common stock would represent 1% of new pro forma stock
- Pro forma stock to be issued for VEBA, U.S. Treasury - 31.2 billion
- Bondholders get 225 shares of stock for every $1,000 in bonds, parallel with humongous dilution
- Debt to be cut at least $20 billion between debt conversion/VEBA action
- If tender is not agreed to, company files bankruptcy

Amusing snippet from the S-4: when the administration tells you that you are too optimistic, you know you have a problem:

A statement released by the U.S. government with respect to the President’s Designee’s viability determination (the “Viability Determination Statement”) indicated that while many factors had been considered when assessing viability, the most fundamental benchmark that a business must meet to be considered viable was its ability—after accounting for spending on research and development and capital expenditures necessary to maintain and enhance its competitive position—to generate positive cash flow and earn an adequate return on capital over the course of a normal business cycle. The Viability Determination Statement noted that our Viability Plan assumed that we would continue to experience negative free cash flow (before financing, but after legacy obligations) through the projection period specified in our Viability Plan, thus failing this fundamental test for viability.

The Viability Determination Statement noted that we were in the early stages of an operational turnaround in which we had made material progress in a number of areas, including purchasing, product design, manufacturing, brand rationalization and dealer network. However, the Viability Determination Statement also indicated that it was important to recognize that a great deal of additional progress needed to be made, and that our plan was based on, in its view, assumptions that would be challenging in the absence of a more aggressive restructuring, including assumptions with respect to market share, price, brands and dealers, product mix and cash needs associated with legacy liabilities. In this regard, the Viability Determination Statement noted that:

• our plan contemplated that each of our restructuring initiatives will continue well into the future, in some cases until 2014, before they are complete and it concluded that “the slow pace at which [the] turnaround is progressing undermines [GM’s] ability to compete against large, highly capable and well-funded competitors”;
  
  
• “given the slow pace of the turnaround, the assumptions in GM’s business plan are too optimistic”; and
  
  
• even under “optimistic assumptions [GM] [will] remain breakeven, at best, on a free cash flow basis through the projection period, thus failing the fundamental test of viability.”

Sphere: Related Content

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Full General Motors 2009-2014 Restructuring Plan

The only thing more amusing than the deranged ramblings of an insane lunatic, are the deranged ramblings of a whole lot of insane lunatics (i.e. the executive committee of General Motors)... and their numerous legal and financial advisors... for whose "efforts" it is of course taxpayers who end up footing the bill...

Well, after going thru the GM plan briefly and suffering cardiac arrest from laughter induced hyperventilation, it only makes sense to share this. The full GM revitalization plan is presented below for your amusement. And if any incipient entrepreneurs are curious, in case you want to get $30 billion of taxpayer money, you have to put together 117 pages of illogical text with the occasional chart and a lot of contradictory statements, such as the table below which lists GM's key assumptions (and the change of these relative to the plan proposed on December 2). Key among these are:

• 2009 US GDP of -2%. This is a "little" aggressive when the consensus number is now south of -4%. Maybe the 2% difference will be made up when consumers blow their $16 extra per paycheck from the stimulus plan on Pontiac Sunfires?


• Downside auto SAAR: 9.5 million. This number will likely become the upside estimate when GM demands another $30 billion next month.


• 2012 U.S. and global market share of 20% and 13%. Where is the more realistic 0% and 0%?

Another hilarious chart pops up on page 12 which shows the traditional "first year analyst" rookie mistake of overcompensating on the back end for an ugly front end. Somehow between December 2 and February 17, GM has realized that although 2009 will be horrendous and only 10.5 million cars will be sold relative to prior estimates of 12 million (dream on), in 2012, the company will more than make up for it when SAAR is now somehow expected to be 16 million, versus a 15 million number merely two months ago. Yes, the situation is truly fluid. And if anyone is buying these BS assumptions, they should be summarily disTARPed.

Anyway, 117 more pages of this kind of nonsense. Feel free to peruse. After all this is the garbage that gets you $30 billion these days.

GM Plan - Free Legal Forms Sphere: Related Content

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