General Motors Corp. (GM) asked this morning its bondholders to swap $27 billion of claims for equity to help the automaker avert bankruptcy.
Here is the statement from advisers to ad hoc committee of GM bondholders:
From The WSJ: The current offer is neither reasonable nor adequate. Both the union and the bondholders hold unsecured claims against GM. However, the union’s VEBA would receive a 50 percent recovery in cash and a 39 percent stake in a new GM for its $20 billion in obligations; while bondholders, who own more than $27 billion in GM bonds and have the same legal rights as the unions, would only receive a mere 10 percent of the restructured company and essentially no cash.
The offer was made unilaterally, without any prior discussion or negotiation with bondholders and in spite of repeated calls for dialogue.
Bondholders and GM have the same basic goal – to restructure the company in a consensual manner, thereby creating a leaner, more competitive GM. In order for GM to emerge from this restructuring process as a profitable entity, all stakeholders should be prepared to make deep, yet equitable, sacrifices.
We are deeply concerned that GM waited until late April to make its offer. GM CEO Fritz Henderson even admitted that getting 90 percent of the company’s bondholders to agree to a debt exchange within a month would be ‘a tough task,’ given the company’s large amount of retail inventors, who hold some $6 billion in bonds.
This offer demonstrates that the company and the auto task force, unfortunately, are pinning their hopes on an extremely risky and legally questionable turnaround in bankruptcy court, instead of engaging its lenders and workers in the very type of negotiations that could avoid such a fate.