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Bloomberg reports that GM bondholders have made a counter-offer to the feds’ debt-for-equity swap proposal. Two days ago, The Presidential Task Force on Automobiles (PTFOA) offered the bondholders a 10 percent piece of a newly reconstituted “good” GM in exchange for $27 billion of paper. The bondholders reckon that should be . . . wait for it . . . 58 percent. To avoid C11, GM must convert 90 percent of its debt into equity. So, forget it. “Old” GM’s toast.
17 Comments on “GM Bondholders’ Counteroffer: Give Us the Company, Then...”
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So somebody correct if I’m wrong.At 58% the bondhoders would be in charge, right?At 41% the union would hold a large stake in GM,but they wouldn’t have control.The shareholders get 1?
In my uneducated simple way of looking at things.
Other than the share holders getting f—ed,[as if they havn’t been diddled enough]I think this sounds like a great plan.
Why would the United States government,not jump at this offer?
Barry’s dictatorship either strengthens from now, or starts to crumble from the fact that he is not simply able to steam-roll over the law and simply order people to give up their financial rights.
People just think this is about the auto industry. I beg to differ.
I mean c’mon. What Constitutional business does any President have in doing ANY OF THIS STUFF?
Or the Congress, for that matter?
We are going to see a summer from hell, and this is part of it.
In the end, it’ll go one of two ways.
“O, what a tangled web we weave,
When we first practice to deceive….”
aren’t the bondholders supposed to get paid back first, or rather second behind the federal loans anyways? I can’t see why the union is supposed to get so much of the new GM when they aren’t owed nearly as much. The bondholders and union should be getting the same offers. 10 billion for 10% while 10 billion VEBA equals some 35%? I don’t think so either… C11.
If they accept 10% for 27b, that means GM needs to be worth 270b at some point for the bondholders to “break even”. Since many of them will be made whole by AIG if GM goes under, why would they even think about taking an offer like that? I don’t blame them, really, but Obama will, because according to him, making money is evil.
At 58% the bondholders would be in charge, right?
Not necessarily. Owning the equity and controlling the company are two different things. Plus, there are different classes of stock, with different voting rights and priorities.
The percentages won’t mean much unless GM is turned around and the company can be flipped or IPO’d. Until then, they’re mostly academic.
One thing to keep in mind is that not all of the bondholders have aligned interests. Those who paid something close to par some years ago probably view things differently from the vultures who paid 20 cents and would love to sell off enough bits to recoup their money. I wouldn’t assume that there is a universal bondholder mindset at work here, and they may have their own conflicts as time goes on.
menno – nothing about the PTFOA or bailout is in any way unconstitutional – unwise perhaps but nevertheless legal. Also, when you personally disagree with a democratically elected president, that does not make him a dictator.
“Why would the United States government,not jump at this offer?”
Because the President is in the hip-pocket of the unions.
# carguy :
April 30th, 2009 at 10:41 am
menno – nothing about the PTFOA or bailout is in any way unconstitutional – unwise perhaps but nevertheless legal. Also, when you personally disagree with a democratically elected president, that does not make him a dictator.
You raised two points.
As for the constitutionality of taking control of private enterprises, it would have to be challenged and might very well lose based on Youngstown Sheet & Tube Co. v. Sawyer, 343 U.S. 579 (1952), that ruled that Pres. Truman did not have the authority to seize the steel industry to avert a large strike during the Korean war. To be sure there are differences since the gov’t is now a creditor of Chrysler and GM, but I’d guess with the current SCOTUS lineup, and since the gov’t takeover of GM and Chrysler has nothing to do with national security or defense (as the original bailout opponents kept reminding us), I think Pres. Obama’s actions would have a very good chance of being ruled unconstitutional.
Chief Justice Roberts himself quoted the steel seizure case recently when ruling against the Bush administration: the president’s authority to act, as with the exercise of any governmental power, “must stem either from an act of Congress or from the Constitution itself.”
Unless Congress authorizes the federal gov’t to buy the car companies, I’m not sure that the President has the authority to do so. Lend them money through the Fed and TARP, yes, but to leverage those loans for an equity position is highly problematic. Like I said, Obama would lose in court. The difference between the Youngstown Steel case and the current situation is that the steel industry fought the seizure whereas the stakeholders in the auto industry are divided.
As for dictators, Hitler, Stalin and Mussolini gave the word a bad taste. Earlier in the 20th century, progressives like Obama admired dictators. Woodrow Wilson (a Democrat) engaged in some pretty dictatorial things himself during WWI.
There are unquestionably some fascist and socialist flavors being mixed into this bitches brew after the meltdowns on Wall Street and in Detroit.
Kudos to the GM and Chrysler bondholders for hanging tough and trying to keep the companies out of gov’t hands, even if it means bankruptcy (which might be a better deal for the bondholders if the bonds are secured and the company liquidated). As least someone in America knows how free enterprise works. They are willing to roll the dice.
At least someone has some balls. Everyone else is just enchanted with the President.
At least someone has some balls.
Since when did overpaying become evidence of testicular fortitude?
The less we pay, the better. It’s my money, and I’m unhappy that this was necessary in the first place.
The time is for hair cuts, and I want to see plenty of buzz cuts, Marine style, without mercy. If those guys don’t come out of this bald and bleeding, then I’ll demand a full refund from the taxpayers of Michigan.
Fine, haircuts all around, but why shouldn’t it proportionately affect the UAW/VEBA?
At least someone has some balls.
Since when did overpaying become evidence of testicular fortitude?
They’re not overpaying, the bondholders are holding out for a better deal. At the same time, they’re stalling an unprecedented expansion of government power.
The bondholders are playing chicken w/ the gov’t. Inside of bankruptcy Obama and the PTFOA have less power (and the bondholders have more power) than if some kind of deal is worked outside of court involvement. Obama may think he can do whatever he wants (interesting how the same people that feared a unitary executive when the president is a Republican have no problem with government by fiat), but the courts still must follow bankruptcy laws.
Fine, haircuts all around, but why shouldn’t it proportionately affect the UAW/VEBA?
It is. The union is getting squat. Useless stock that is going to be worth zilch if things crash and burn, which may very well happen.
If equity was so great, the bondholders would be fighting for it. Instead, they are demanding cash, because greenbacks are vastly preferable to worthless stock. No one can examine this transaction and come away thinking that the UAW scored anything; they got outsmarted when they took the VEBA deal, and this just seals the deal.
They’re not overpaying
Right. That’s the point — instead of the government capitulating with my money, the government is trying to pay less. That’s exactly what the government should be doing.
Inside of bankruptcy Obama and the PTFOA have less power (and the bondholders have more power) than if some kind of deal is worked outside of court involvement.
If that was true, the bondholders wouldn’t have made the counteroffer that they did. The collateral isn’t worth anything close to 65 cents. You try selling a used factory in the Midwest, and see how well you do with it.
Well, certainly cash is preferable to stock in this case. It’s hard to argue with that.
On the other hand, if the stock is in fact worth squat, then it shouldn’t be that big of a deal for the UAW’s pile of squat to be allocated proportionately to the bondholders’.
On the other hand, if the stock is in fact worth squat, then it shouldn’t be that big of a deal for the UAW’s pile of squat to be allocated proportionately to the bondholders’.
It’s irrelevant. The proportions don’t mean anything, because the stock classes are not equal.
Fiat’s 20% is vastly better than the VEBA’s 55%. It isn’t about percentages, but controls, cash flow and claims to future proceeds.
Ideally for us, the bondholders would convert to equity and take zero cash. Ideally for the bondholders, they would be paid par. Somewhere in the middle of that is the place where things will end up.
The best thing for the government to do is to offer very little, and start compromising from there. That is what they’re doing, and it makes sense.
I don’t know, I haven’t seen anything to indicate that there are different classes of stock proposed. In the case of FIAT/Chrysler, an article indicated that FIAT would get 20% “by value and voting” (or something to that effect) but did not mention how the other shares would work.
I guess we’ll only know for sure once the ink is dry on the court orders.
Cheers,
Jeremy
I haven’t seen anything to indicate that there are different classes of stock proposed.
The press release implies it throughout. 55% of share ownership is not providing 55% of control, and you can tell from the other terms that the priorities aren’t pro rated, either.
The 55% is only going to be worth something if the company goes public. That ball will be in Fiat’s court.