Top Stories

The Michigan Messenger going forward

By Staff Report | 11.16.11

I am writing today to announce the closure of the Michigan Messenger. After four years of operation in Michigan, the board of the American Independent News Network, has decided to shift publication of its news into a single site, The American Independent at Americanindependent.com. This is part of a shift in strategy, towards new forms [...]

Colorado-based abstinence program provided false and misleading information to Michigan students

HIV-AIDS-small
By Todd A. Heywood | 11.16.11

An abstinence-only presentation provided to numerous school districts in Calhoun and Eaton Counties in October of this year provided false and misleading information to students about HIV, experts allege.

Class action lawsuit filed against MERS over unpaid taxes

foreclosure
By Todd A. Heywood | 11.15.11

Two county registers of deeds filed a class action lawsuit Monday on behalf of Michigan’s 83 counties alleging that the Mortgage Electronic Registration Services owes millions of dollars in property title transfer taxes.

Schuette fights important mercury regulations

epa_logo
By Eartha Jane Melzer | 11.14.11

Despite evidence of the impact of mercury on children and public health, Michigan Attorney General Bill Schuette last month joined with 24 other state attorneys general in filing a lawsuit to scuttle new EPA regulations that would reduce mercury emissions from power plants.

GM bondholders make new counteroffer

By Ed Brayton | 05.01.09 | 1:03 pm

In the wake of Chrysler declaring bankruptcy because debtholders refused to accept the terms of a government-mandated debt restructuring, the negotiations between General Motors, the Treasury Department and the company’s bondholders continue. Unfortunately, they have radically different proposals at this point.

The latest proposal from GM and the government would write down about $27 billion in debt in exchange for about $3 billion in cash plus a 5-10% stake in a newly restructured GM. Under that proposal, the UAW’s employee healthcare plan, the Voluntary Employee Beneficiary Association (VEBA) would own 39% of the company and the government would control just over 50% (that control would decrease as the billions of dollars in government loans are paid back).

The latest counteroffer from the bondholders could scarcely be more different:

Under their proposal, the bondholders would get 58% of a reconstituted GM — compared with about 10% under the company’s Monday proposal. The ad hoc committee represents about 20% of GM’s $27 billion in unsecured debt.

The UAW’s retiree health care trust, which is owed about $20 billion in obligations, would get 41% of GM. Current shareholders would get 1%.

The U.S. government, which has so far lent GM $15.4 billion, would not get a stake.

It’s hard to see much room for compromise between these two diametrically opposite visions for the company. The Chrysler bankruptcy is widely viewed as a very blunt message from the government to GM’s bondholders, a shot across their bow to tell them that this is a game of hardball and if they don’t agree to the terms offered, the Obama administration has no problem forcing GM into bankruptcy as well.

There’s another month of negotiations ahead, but with the two sides so far apart and the administration sending clear messages of not compromising its position, it’s difficult to see how it doesn’t end in bankruptcy for GM as well unless the bondholders lose their nerve.

Comments

  • byrneb

    Readers should more fully understand the offer the administration is making to bondholders through GM to better understand that, if it stands, bankruptcy is certain. First, the offer exchanges for eery $1,000 in debt, 225 shares of GM stock. But before the stock is issued to bondholders, it is subject to a 100 to 1 reverse split, meaning in plain language for every $1,000 in debt, a bondholder will get 2 shares of GM stock by the administration's imposed bondholder recovery ceiling on GM, as it's CEO has publicly confirmed.

    Bandied about is the notion that bondholders can expect to see between $300-$400 in recovery for every $1,000 excanged. This is wildly inaccurate. For such to be the case, GM stock now trading at under $2 per share would need to rise to trade at $200. And its obvious the administration doesn't expect the stock to trade anywhere near $200 per share.

    To cover its own loans to GM and the VEBA obligation to the UAW, the administration's plan issues a combined 90% of GM stock to itself and the union. But together, the debt or claims converted to equity amount to roughly $20 billion. So the administration, to cover $10 billon of it's loans and $10 billion of the VEBA obligation (the other 10 is to be paid in cash) allocates fully 9 times the amount of stock it provides to bondholders to be made whole for $27 billion dollars owed.

    By the administration's math, it is expected GM stock will likely trade at around $22 per share. This gives them and the UAW a 100 cent on the dollar recovery. For bondholders this means a scant $44 recovery for each $1000 invested – less than half a penny on the dollar.

    Bear in mind, the union and the bondholders rank equally in a bankruptcy court.

    Now does anyone expect more than 90% of GM bondholders (the minimum the administration is requiring) will take less than half a penny on the dollar when the law ranks their debt equal to the union who is slated for a 100% recovery in the administration, what are we at now,Plan D?

    Only a near pro rata deal such as has been countered by the ad hoc committee has any hope of getting a large number of bondholders to sign on. But it seems the plan is to enter into a bankruptcy anyway…

    Pax et bonum

  • byrneb

    Seems the editing feature doesn't work :(

    Correction: bondholder recovery is less than 5 cents on the dollar, not less than half a cent.

    Pax et bonum

Categories & Tags: | |