Monday, April 27, 2009

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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