A leading auto industry analyst says that the conditions placed on the federal bailout money will virtually eliminate any equity General Motors has. Automotive News reports:
 

General Motors’ equity may be largely if not entirely wiped out as it complies with the restructuring targets laid out in the U.S. auto bailout, an analyst at Credit Suisse said.

“Over the next two months … it will become increasingly clear that the enormous sacrifice of value on the part of the union and bondholders will require the complete or near-complete elimination of the existing GM equity,” analyst Christopher Ceraso wrote in a note titled “Game Over for Existing Equity.”…

The government attached a string of conditions to the three-year loans and set a deadline of March 31 for the automakers to prove they can restructure enough to ensure their survival or have the loans called back.

As part of the rescue, GM is required to reduce debt by two-thirds via debt-for-equity swaps, pay half of the contributions to a retiree healthcare trust using stock, make union workers’ wages competitive with foreign automakers and eliminate the union jobs bank, which pays laid-off workers.

Cerberus, the private equity firm that owns Chrysler, has already begun offering debt-equity swaps to its bondholders. In such a deal, those who hold debt owed by the company would exchange that debt for a stake in the company itself, usually in the form of stocks. Cerberus is essentially offering its entire stake in Chrysler to be given to debtholders.