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AP: Bondholders Causing GM Bankruptcy

From an outraged Associated Press:

GM says bondholder offer fails; bankruptcy likely

By Tom Krisher And Dan Strumpf, AP Auto Writers

DETROIT – A General Motors Corp. bankruptcy filing seemed inevitable after a rebellion by its bondholders forced it to withdraw on Wednesday a plan to swap bond debt for company stock.

GM has until Monday to complete a government-ordered restructuring that includes debt reduction, labor cost cuts and plant closures. But a Chapter 11 reorganization is likely after the company said its offer to exchange $27 billion in unsecured debt for 10 percent of the company’s stock had failed. GM has received $19.4 billion in federal loans…

News of the failed GM bond exchange offer sent its shares down 12 cents, or 8.3 percent, to $1.32 in morning trading…

There was a small hope Tuesday that GM could avoid a bankruptcy filing when the United Auto Workers union disclosed that it would take a 20 percent stake in GM — down from the original plan of 39 percent. That seemingly freed 19 percent of the Detroit-based company’s shares to sweeten the pot for its recalcitrant bondholders.

Wilkinson would not say why GM didn’t make the offer to bondholders more attractive.

Because the bondholder deal did not go through, the equity freed by the UAW deal now apparently will go to the U.S. government, which may have to commit billions more for GM’s restructuring in court.

The government’s stake in the company originally was to be 50 percent, according to GM’s regulatory filings. But it now could be as high as 69 percent

The UAW disclosed Tuesday it agreed to take a much smaller 17.5 percent stake in GM, plus a warrant for an added 2.5 percent stake to partially fund the $20 billion that GM must put into a trust that will start paying retiree health care costs next year.

In exchange for agreeing to a lower equity ownership stake, GM promised the union $6.5 billion of preferred shares that pay 9 percent interest, plus a $2.5 billion note. The union, facing the possibility that it may not be able to quickly sell GM shares to fund its trust, preferred the certainty of the $585 million annual dividend that accompanies the preferred shares.

The remaining $10 billion will come from health care trust funds that GM already has set up. The trust will get a seat on GM’s board as well, although it will have to vote at the direction of GM’s other independent directors. The concession deal, on which roughly 61,000 workers will vote by Thursday, also froze wages and cut retiree health care benefits, performance bonuses and cost-of-living raises.

When GM announced its debt exchange last month, the company offered bondholders 225 shares of common stock for every $1,000 in debt — or a 10 percent stake in the restructured company. In addition to the UAW’s share, the federal government was to take 50 percent for exchanging a combined $20 billion of their debt to equity. Current stockholders would end up owning just 1 percent of the company

GM had said previously that the government was preventing it from offering bondholders more than 10 percent of the restructured company.

Some analysts said GM’s bondholders may be holding out for better terms in bankruptcy, where they would normally get up to 40 percent of their holdings back

You see, according to the Associated Press, it is those evil GM bondholders who are going to force General Motors into bankruptcy.

But aren’t the details interesting. Such as:

The government’s stake in the company originally was to be 50 percent, according to GM’s regulatory filings. But it now could be as high as 69 percent.

And:

GM had said previously that the government was preventing it from offering bondholders more than 10 percent of the restructured company.

Also note how the article makes it sound like the UAW is making a sacrifice to try to please the bondholders, until we get to this buried paragraph:

In exchange for agreeing to a lower equity ownership stake, GM promised the union $6.5 billion of preferred shares that pay 9 percent interest, plus a $2.5 billion note. The union, facing the possibility that it may not be able to quickly sell GM shares to fund its trust, preferred the certainty of the $585 million annual dividend that accompanies the preferred shares.

Meanwhile, in the final paragraph we get another interesting detail:

Some analysts said GM’s bondholders may be holding out for better terms in bankruptcy, where they would normally get up to 40 percent of their holdings back.

How greedy these investors are. Why couldn’t they settle for 10%?

Look at how the UAW is sacrificing.

This article was posted by Steve on Wednesday, May 27th, 2009. Comments are currently closed.

18 Responses to “AP: Bondholders Causing GM Bankruptcy”

  1. Reality Bytes says:

    Wait for the Activist in Chief’s Code Words: Investors = Speculators = “Those” on Wall Street (but what he really means is…Jews).

  2. Reality Bytes says:

    Wait for the Activist in Chief’s Code Words: Investors = Speculators = “Those” on Wall St. (but what he really means is..Jews. It’s the word that just keeps giving to his base).

  3. pdsand says:

    As Ben Stein has said, when you hear shareholders, think widows and orphans, because the pension funds and other mutual type funds are the #1 investor in everything in this country. I guess the Democrat party missed that day in business class though.

    • EvaTheFrisbeeDog says:

      Spot on, but to be clear, bond holders are lenders who are to be paid back before owners (shareholders) get their cut.

      Who buys bonds? People who don’t want the risk of ownership. For this additional safety, bondholders have a limited return, whereas shareholders can make a killing — or in GM’s case lose everything. Accordingly, more often than not bondholders are folks who have limited future earning potential. This includes retirees as well as widows and orphans.

      What Obama wants to do is convert these lenders into owners who would be wiped out in a bankruptcy. The idea is to put everyone in the same position so that a bankruptcy filing is less likely.

      In a bankruptcy filing the bondholders will get 40 cents on the dollar and the UAW contract could be renegotiated, which would actually give GM a shot at viability. But Obama wants bondholders to convert to shareholders and take on additional risk with little upside, i.e. just look at GM’s new fleet of hamster wagons and clown cars, so that it’s less likely the UAW will lose their negotiating leverage.

      He’s put the UAW ahead of the entire US auto industry, just as Congress with their two-fleet CAFE regulations. This is a sham and a shame!

    • proreason says:

      “What Obama wants to do is convert these lenders into owners who would be wiped out in a bankruptcy”

      More than that.

      He wants to wipe out the wealth of the middle class so that they can no longer challenge his authority, and to take revenge on them for not happily agreeing to racial demands for financial reparations for events of 200 years ago.

      Transferring a huge amount of wealth to the UAW satisfies part of the revenge goal (because the UAW has a high % of minories since it is concentrated in Detroit), and it is also payback for the UAW’s knee-breaker support in the 2008 election coronation.

      Another point that has never been discussed here is the quality of automobiles manufactured in Detroit vs the quality manufactured in other parts of the country. It would be interesting to see a study of how the work product in Obamyland compares to the work product in other parts of the country. Of course any study would be vigorously repressed. But does anybody want to bet what the results would be?

  4. proreason says:

    “recalcitrant bondholders”

    And when they confiscate your house and land for the “greater good”, you too will be “recalcitrant”.

    Because after all, what fun is it to be a dictator if you can’t dictate?

  5. Reality Bytes says:

    PD! Reality has nothing to do with an activist’s cause. Winning control is EVERYTHING! If you read Levin’s book and want more, read David Horiwitz’ “Radical Son”. As the child of a two community organizing communists (sound familiar) & self described former communist himself, David can shed further light on the oppression of populist activism that we are currently being subjected to.

    PS: RB Tini’s ain’t enough my friends!

  6. Colonel1961 says:

    The biggest shakedown in history…

  7. Snardius says:

    Obama is all about redistribution of wealth.
    In this case…the bondholders have wealth and he wants to redistribute it to the unions.
    No mention of how much wealth his policies have destroyed up ’til now.

  8. Reality Bytes says:

    “Detroit Shakedown” the Soundtrack by The J. Geils Band

    http://www.youtube.com/watch?v=hakE5UwLPBc

    with commentary by Colonel1961. RB at the bar. Pro on drums. It’s like our own SWAT Pack

  9. Snardius says:

    After Obummer guts the bondholders in this GM fiasco, where will companies go to raise money? Can you see any moneymanager confidently buying the bonds of ANY company?

    • proreason says:

      That’s a big part of the plan……..destroying capitalism.

      Once companies can’t raise money, what will be left to create jobs in this country.

      Bingo!!!

      the government

    • MinnesotaRush says:

      And all of it .. all of it .. gurgling forth from a guy who’s s’posedly ultra familiar with and grounded in “the rule of law”. Yeah. Righhhhhhht!

      A picture of sheep being led to slaughter keeps rolling thru my head.

  10. wirenut says:

    I remember a time when the only thing that stopped you, was your own ambition. That striving, working hard and never giving up, was noble. I can see it in my co-workers eyes, my neighbors and my own. What we work for, we are proud of, because it is ours. Not much by some standards, but it is ours and earned. The eyes today look at government rather than to themselves. How can you be proud of anything that’s not worked for or earned by your own hand? We can still pull this out and this is the only country in the world where it can happen. Freedom, rugged individualism and responsibility will reign. I will NOT go quietly. Earlier today my neighbor was washing and waxing his twelve year old riding lawn mower. Runs like a top and now looks great. Ain’t that America !!!


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