GM to offer complete equity swap to bondholders and union

The Obama administration’s auto taskforce is pushing General Motors to make an offer to convert all of their outstanding bonds and money owed to the UAW to stock in one huge debt-equity swap. Reuters reports:

The Obama administration has directed General Motors to prepare a new restructuring plan that would pay off bondholders and the automaker’s major union in stock in exchange for $48 billion in debt, people briefed on the plan said on Friday.

The U.S. Treasury, which has provided $13.4 billion in emergency funding to keep GM operating since the start of the year, has indicated that it could also convert those taxpayer-backed loans into GM stock, the sources told Reuters…

The stock-based payout to GM’s major union and its bondholders would represent much deeper concessions for both groups than the terms they had been offered under the GM bailout loans approved by the Bush administration.

“The task force was clear this was the best way for GM to achieve success going forward,” said one of the sources.

Over the last few weeks, the company had been trying to swap 2/3 of its $28 billion in bond debt and half of the $20 billion it owes to the UAW’s healthcare fund for stock equity instead of cash. Both bondholders and the UAW balked at even converting that much of what they were owed to stock, but now the task force wants them to accept stock for all of those debts.

One expert told Reuters that this offer was likely a last-ditch effort to avoid bankruptcy. If the bondholders and the union refuse the terms, that could well be the final straw that pushes the company into Chapter 11 restructuring.