Monday, April 27, 2009

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).


- 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.”
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