GM Bond Holders Want Their Pound of Flesh

“…GM bond holders have requested a meeting with the auto industry task force. Remember, one of the key issues for GM, they don’t have to just reach deals with the union but they also have to reach a deal with their bond holders to get the bond holders to accept less than what they owe them. Right now they owe them 100 percent…”

General Motors (GM) is in trouble, big trouble. This quote comes via CNBC’s Closing Bell this Friday, and speaks to just how backwards the system of losing billions and then getting bailout; it makes very little sense at all. GM endured one of the toughest years in its history, and shows few signs of becoming profitable anytime soon. GM has lost an astounding $70 billion since 2005, and without government intervention they would be bankrupt.

A novel idea this bankruptcy thing, it would enable GM management flexibility to negotiate with not only the unions but also bondholders to come up with a better way forward. They would not have to shutter their plants and would continue to make cars, as long as they became a viable stand alone company. Now, GM is left with very little leverage as bond holder have the right to demand 100% payment from the struggling company. Whether or not that hurts the company is really not the bond holders’ problem.

The bottom line is, GM is in effect, going through Chapter 11 negotiations we just aren’t supposed to call it that. GM’s balance sheet is an absolute wreck (negative $59 billion in equity at the end of the third quarter) and they are hemorrhaging cash each quarter ($6.2 billion in the fourth quarter). One thing I want to know, is who is representing the taxpayers interests in GM debt? Do we have any say in this at all?

GM Bond Holders Want Their Pound of Flesh

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