As GM augers-in for its Chapter 11 face plant, the Presidential Task Force on Autos (PTFOA) has been busy cutting back-room deals with bondholders. Reuters reports that the feds are getting their proverbial ducks in a row for a fast-track fustercluck—sorry, reenergized company. “Under the proposed deal, which is supported by major institutional creditors holding about a fifth of its debt, bondholders representing $27 billion in debt would be offered 10 percent of a reorganized GM — the same stake they had been offered previously. In a sweetener, bondholders would also receive warrants to acquire another 15 percent of the equity in the new company, provided they support a quick Treasury-backed sale process similar to one now being used for rival Chrysler.” GM has released a statement on the new plan, removing any last traces of doubt that it’s headed for the world’s largest bankruptcy proceeding . . .
The U.S. Treasury proposal announced today provides incentives for GM’s unsecured bondholders to support GM’s restructuring efforts in the event GM decides to pursue a 363 sale as part of a bankruptcy proceeding. Implementation of this proposal would result in a New GM with a healthy balance sheet, putting the new company on a clear path toward long-term viability and success. GM appreciates the unwavering support of the U.S. Treasury and the President’s Task Force on Autos and thanks the unofficial committee of bondholders for their support of the proposal.
So, did the PTFOA express its “support” for “new” GM with a threat or a promise? Yes!
Bondholders would have until 5 p.m. EDT on Saturday to indicate they would not oppose the sale process as planned, GM said. If bondholders do not provide those indications, common equity and warrants “would be substantially reduced or eliminated.”
Which tells us that GM—well, the PTFOA—has decided to wait ’til Sunday to file for bankruptcy. Anyway, needless to say, the majority of GM’s bondholders (some of which are into the TARP program for billions) immediately caved.
A committee representing the major bondholders said they supported the revised offer as the “the best alternative … in the current difficult and dire situation.”
What else could they say?
After the Chrysler unintended-consequences-fiasco for bondholders by this imbecilic administration, what else would you expect to see?
I’m sure that there is absolutely no Chicago-politics-style strong-arming (a polite term for extortion with menacing threats) going on behind closed doors by this same “change and hope” administration. (extreme sarcasm alert for those asleep while reading…)
Those of us who hope for real change are sorely disappointed in just a more concentrated version of Chicago politics as usual writ large.
I’m just curious what would happen if any other company pulled this same thing. There are laws to protect investors and creditors in bankruptcy so they don’t get completely fucked, can anyone explain why the PTFUA is allowed to ignore them?
Diktat-orships don’t ask permission to break laws and write illegal laws, superbadd…
This reminds me of a movie I once saw. GM could negotiate away ownership stakes with each of the parties it is dealing with. Give the UAW 30%, the CAW 15%, bondholders 50%, the banks another 50%, the US Govt 70%, etc. It’s only a problem if GM is ever finally worth something.
So I have to ask: Is the Pontiac G3 the new “Springtime for Hitler”?
SherbornSean: Brilliant!
Now, which party gets to hire the blond secretary…?
headed for the world’s largest bankruptcy proceeding . . .
I don’t think that is correct. Lehman Brothers is the largest with $691 Billion in assets and I don’t think they are going to be close to topping that. Probably the largest industrial bankruptcy filing. Even Chrysler is on this list at number 6.
Largest Bankruptcy’s
I am slightly left leaning and have been taking a wait and see approach to GM’s failure. I have followed GM’s downward trend for 60 years.
The book, “How the Mighty Fail” doesn’t mention GM but for those of us who have followed GM it is easy to see the 5 downward steps mentioned in the book.
My wait and see approach is changing because of the following editorial that appeared recently in the Huffington Post. I voted for Obama but wasn’t aware of exactly what he was attempting with GM’s rescue. Along with the editorial and the many comments here on TTAC about what cars GM has available now and in the future (little of interest) I am more and more leaning towards wishing we could just get GM out of our system before we spend any more money on them. Following are the last 3 paragraphs of the Huffington Post editorial:
President Obama chose to side with the UAW. That’s his prerogative, although fleecing lenders to pay off powerful electoral groups sounds politically motivated. But instead of resorting to cheap populism he should admit to helping the UAW at the expense of the bondholders, many of them are retirees, teachers and police officers.
More importantly, a world where the president bristles at contract rights to marshal the huge resources of government in a war against investors is a world where companies will find it very hard to borrow. Who would provide capital knowing the government capriciously demonizes investors and arbitrarily confiscates their assets? Who would provide capital to have Washington as a foe, ready to subvert the law and pulverize investors on a moment’s notice? And how will banks attract the brightest employees if they become a slavish ward of Washington, with compensation restrictions in effect?
This is not an insignificant concern given that a modern capitalist civilization cannot function without a sound banking industry that is able to provide credit regularly.
Alan Schram is the Managing Partner of Wellcap Partners, a Los Angeles based investment firm. Email at aschram@wellcappartners.com.
Instead of railing about socialism, people should call this what it is – government-subsidized crony capitalism.
Only the UAW is the crony, instead of a herd of Wall Street fat cats.
For the most part, though, it stinks as bad as the old version.
@ SherbornSean:
Well said. I’m still trying to grasp how the government gets 72% the union gets 17% and the bondholders get 25% of the new company.
guyincognito :
Well said. I’m still trying to grasp how the government gets 72% the union gets 17% and the bondholders get 25% of the new company.
—
Treasury 72%
Shareholders 1%
Union 17% + $10 billion cash and notes
Bondholders 10% plus warrants of 15% to buy basically from Treasury
72+1+17+10= 100
Treasury is is largest lender and will provide DIP financing, effectively making this a huge cash burn. They are arrogant and have tried to control the bond market. The bond market(BM) is bigger than the Treasury actually and the BM is saying screw you Obama to union workers since Obama is destroying contract rights by disregarding secured creditors. Look at the spreads in the BM, industries with union selling bonds are not being bought. The BM will not buy GM bonds, the company is completely dead thanks to Obama and his union hardon. He can blame hedgefunds all he wants, screwing up the market rules for social justice for unions on this scale is stupid if in the long run there is a net loss.
Watch the interest rates march up now. The Treasury’s bond market bubble burst last week. Depression full steam ahead….
There are laws to protect investors and creditors in bankruptcy so they don’t get completely fucked, can anyone explain why the PTFUA is allowed to ignore them?
No laws are being ignored. The morons who claim this were asked to show which laws were violated and no takers in the weeks they’ve continued to assert this.
Adjust regard for those people accordingly.
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He can blame hedgefunds all he wants, screwing up the market rules for social justice for unions on this scale is stupid if in the long run there is a net loss.
For a law stud you sure like to ignore the law.
Here’s a breakdown of BK rules in case they didn’t cover them in remedial classes, presented so even morons can understand:
Chap7, liquidation, everything gets sold for X dollars, split according to priority rules
Chap11, reorg, S363, similar except new company is formed to buy assets for about same X dollars, split according to priority rules.
The bondholders got everything they were entitled to. Nobody in chrysler’s case can argue X was over 2bil. Anything and everything else involving New Chrysler including hookers and booze for the UAW is prerogative of DIP financiers separate from whatever bondholders want.
Remember who fooled you into mixing the unions into the straight up bond deal. The pathological liars who are source of this should be mocked mercilessly.