Thursday, May 28, 2009

GM's Bondholders Support Sweetened Deal

According to various news sources, GM's bondholders have agreed to a sweetened deal to exchange their debt holdings with equities in a new "good" GM.

GM says bondholder panel supports sweetened offer (AP):

"DETROIT – General Motors Corp. said Thursday a committee of bondholders has agreed to a sweetened deal proposed by the U.S. government to erase the automaker's unsecured debt in exchange for company stock."

"The revised offer to the holders of $27 billion in unsecured GM bonds amounted to a take-it-or-leave-it ultimatum: Go along with what the government auto task force's proposal or be left holding the assets a new GM doesn't want — ones with presumably little value at all."

Under this sweetened (but take-it-or-leave-it) offer,

  • Unsecured bondholders will receive 10% equity of "good" GM, plus warrants to buy up to 15%, in exchange for their $27.2 billion debt holdings. They also effectively hold old "bad" GM.
  • The US government will receive 72.5% equity for $19.4 billion it already lent plus $30 billion more in additional financing.
  • UAW will receive 17.5% equity.
  • Total wipe-out for the current common stock holders.

This committee of bondholders represent about 20% of GM's unsecured debt holders. 15% already approved the 1st deal that the government offered. So the government has 35% of unsecured debt holders' approval.

What about SECURED debt holders? The above article doesn't say. GM has $6 billion secured debt. According to this report,

"The source, who was not cleared to speak with the media and would not be identified, said the U.S. government would pay for the assets by assuming the automaker's $6 billion of secured debt ..."

So the government may assume the secured debt, and it may be negotiating right now at what price the government will assume the debt.

Chrysler's senior debt holders will get 29 cents on a dollar for their $6.9 billion 1st-lien secured debt. I wonder how much better off GM's secured debt holders will fare.

(What's "good" GM made up of, anyway? Anything good left?)


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