DETROIT -- Unless bondholders agree to a long-shot debt exchange prescribed by the federal government,
The debt exchange is a critical component of the automaker's revised restructuring plan, announced Monday, which also calls for the company, by next year, to kill its 83-year-old Pontiac brand, cut its network of dealers nearly in half, close 13 plants and eliminate 21,000 factory jobs.
The new plan also says
The more aggressive plan was developed in recent weeks with the aid of President Obama's task force on autos, which on March 30 rejected GM's earlier viability plan and also forced out former Chief Executive G. Richard Wagoner.
Henderson indicated GM will do whatever the government wants to ensure its long-term success. "We need to have a more stable and sustainable business model, because, candidly, we only want to do this once," Henderson said at a news conference.
In divvying up what's left of GM, the government intends to take the largest slice for itself--just above 50%--and hand another fat piece--39%--to the United Auto Workers union. That would leave a little over 10% for GM's bondholders, if they choose to accept GM's offer to swap $27 billion in unsecured debt for new equity in a restructured GM.
It's a lousy deal, most analysts agree, and even GM's chief financial officer, Raymond Young, admitted that getting 90% of bondholders to accept it--the government's threshold--is a "high hurdle." If they don't, GM intends to file for bankruptcy, Henderson said.
In a statement, advisers to GM's ad hoc bondholders' committee denounced the offer as blatantly unfair because it would favor the UAW. GM owes $20 billion to a UAW trust fund for retiree health care. Under the plan, the UAW would receive half of that in cash, and swap the remaining debt for a 39% stake in a new GM.
"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% of the restructured company and essentially no cash," the committee's advisers said.
"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."
But with the government controlling GM's purse strings, bondholders might have few options. "This looks pretty heavy handed," says Gimme Credit bond analyst Shelly Lombard. "This is not an olive branch--this is a sledge hammer."
Ordinarily, when a distressed company is recapitalized, shareholders are virtually wiped out and bondholders walk away with the lion's share of the equity, says Van Conway, of Michigan turnaround firm Conway MacKenzie and Dunleavy. "We have an interesting dynamic here" because of the government's participation. "Don't underestimate the effect of government pressure," he said, adding that the government's willingness to keep funding GM might give bondholders reason to bet on a GM turnaround.
In a statement, the president's task force called the bond exchange offer an important step in GM's effort to restructure its company. The administration has made no final decision regarding the treatment of its current loan to GM or whether to make any future investments in the company.
White House Press Secretary Robert Gibbs said, "it is not our desire to either own or run one of the auto companies."
Meanwhile, Gibbs said the administration is pleased that Chrysler has reached deals with its U.S. and Canadian unions that will help pave the way for a tie-up with Italian carmaker
Chrysler has until Thursday to complete a deal with Fiat or face certain bankruptcy liquidation.
On Monday, Germany's Daimler AG said it had reached a deal with Chrysler and private equity owner Cerberus Capital Management to resolve remaining pension issues involving former employees of
