The Jury Talks Back

4/28/2009

GM’s Special Bondholders

Filed under: Uncategorized — Kevin M @ 8:34 am

“All animals are equal, but some animals are more equal than others.”

— George Orwell, “Animal Farm”

Some GM bondholders own $27 billion in secured bonds.  The administration’s negotiators are offering them 10% of GM’s stock in exchange.  Another set of bondholders hold $20 billion in bonds, identically secured.  They are being offered 39% of GM’s stock and $10 billion in cash.

The difference?  The favored group happens to be the UAW, as the result of their negotiations with the Obama administration.  The private bondholders are offered the scraps that the union left.  Of course, if GM goes into bankruptcy, this deal is off the table.  Since it will require 90% of the bondholders to agree — something that looks unlikely considering the imbalance in the offer — bankruptcy seems all but certain.

So, when GM goes into liquidation, amid all the wailing about the lost jobs, the failing economy in Michigan, greedy banks and GM’s horrible management, remember: This could have been avoided.  They just had to give all parties a fair deal, and they didn’t.

UPDATE:  Sometimes this article disappears behind the WSJ subscriber barrier (but Google GM bondholders unfair).  The relevant portion:

Earlier Monday, GM announced an exchange offer for $27 billion of its unsecured bonds. The exchange will commence only if 90% of bondholders agree to the terms. If GM fails to get adequate participation, it will file for bankruptcy protection.

These terms are “neither reasonable nor adequate,” the bondholders’ committee said. Those who own more than $27 billion of GM bonds would only receive 10% of the restructured company and “essentially no cash,” the statement said. Meanwhile, the union, which has the same legal rights as the bondholders and has $20 billion in obligations, would benefit more – 50% recovery in cash and a 39% stake in the new company, according to the statement.

“We believe the offer to be a blatant disregard of fairness for the bondholders who have funded this company and amounts to using taxpayer money to show political favoritism of one creditor over another,” the statement said.

8 Comments

  1. What do you expect when you combine the Democrat Party, Unions, and Lawyers? Everyone gets screwed and the company goes into the toilet.

    Comment by PCD — 4/28/2009 @ 9:47 am

  2. Aaaargh! When did the Wall Street Journal go to a subscription-only site? Can’t read Kevin’s link.

    Comment by JVW — 4/28/2009 @ 6:51 pm

  3. Not even doing socialism correctly.

    Comment by htom — 4/28/2009 @ 8:47 pm

  4. I will NEVER purchase, lease or own another GM vehicle. Even if someone were to GIVE me a brand new Corvette, no strings attached, I would walk away.

    Any company that has so little regard for it’s legal, moral and ethical (not to mention fiduciary) responsibilities to its creditors deserves to DIE.

    Comment by Dr. K — 4/29/2009 @ 2:28 am

  5. Dr. K – the Hybrid full-size pickups coming out now (20mpg both highway AND city) are products of Rick Wagoner. The guy Obama fired. How do you like them apples.

    Comment by carlitos — 4/30/2009 @ 10:35 am

  6. I could not care less. The last 3 GM vehicles I have leased have been too much money for too little quality. GM lost me a few years ago. Their current “offer” simply made it easier to justify my decision to boycott GM.

    Comment by Dr. K — 4/30/2009 @ 5:59 pm

  7. I’m open to a new Z0-6, or ZR-1, or a primo used GTO!
    The rest: Good Luck.

    Comment by AD - RtR/OS! — 5/1/2009 @ 10:31 pm

  8. Hypothetical legal question …

    Can the private bondholders take GM-and-whomever to court to sue for equal treatment wit the Union bondholders ? Somehow force a proportional distribution of the resulting ‘assets’ ?

    If I were the one holding the private bonds, I’d be tempted to sue for the cash that the Unions are getting – and let the Unions have my 10% of GM stock in exchange … then the Administration and the Unions can show us all how well they can run a major auto company without any evil capitalist management getting in the way !

    Comment by Alasdair — 5/2/2009 @ 2:04 pm

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