Letter:GM Bondholders Doubt Plan Can Save Co From Bankruptcy
22 März 2009 - 9:44PM
Dow Jones News
A group representing General Motors Corp. (GM) bondholders
doubts whether the auto maker's survival plan will be enough to
keep the company out of bankruptcy given the sharp decline in U.S.
vehicle sales.
In a letter sent Sunday to U.S. Treasury Secretary Timothy
Geithner and advisors to President Barack Obama's auto task force,
advisors to the group say demands that bondholders swap two-thirds
of their debt for equity in a restructured GM pose too much risk
given the company's precarious state.
The debt-for-equity swap is a critical part of GM's plan to
restructure out of bankruptcy with help from up to $30 billion in
federal loans.
"We are concerned that the company is putting too much faith in
a near-term turnaround in the economy that would enable annual car
and truck sales to reach previous levels," says the letter, from
bondholder advisors Houlihan Lokey Howard & Zukin Capital, Inc.
"We do not know if the plan would, in fact, keep the company out of
bankruptcy (in which case the securities received by the
bondholders in an exchange would likely be worthless and the
retirement funds and others who counted on these securities would
be left with nothing)."
The bondholder group is seeking a more flexible deal from the
government. Terms of GM's $16.4 billion federal loan call for
bondholders to swap two-thirds of their debt for equity and to
accept non-preferencial treatment behind non-bondholder
creditors.
The group says it proposed a deal that would have met the
two-thirds requirement, but has received no response from GM or
Treasury.
Comprised of around a dozen big GM bondholders, the group has
been negotiating with the auto maker since early this year on terms
of a debt swap exchange.
But talks stalled weeks ago amid conflict between the
bondholders and United Auto Workers, which is in a parallel set of
negotiations with GM over allowing the auto maker to use equity
rather than cash to fund billions in retiree health care
obligations.
Both groups insist they are being asked to sacrifice more than
the other, and both are lobbying the government to back off terms
set by the former Bush Administration when it granted emergency
loans to help GM and Chrysler LLC narrowly avoid a bankruptcy last
year.
The bondholders group has come under fire from some lawmakers
and a lead advisor to Obama's auto task force who have criticized
the group for resisting the government's terms.
The thinking of the bondholders group is that such as deal may
be difficult to sell to thousands on individual bondholders.
"We remain willing to play a constructive role in GM's
restructuring and are open to proposals whose terms may differ from
those set by the Bush administration but have the objective of
turning the company around," the letter said.
The conflict comes as GM and Chrysler face a March 31 deadline
to present the government with updated restructuring plans that are
to include details of the debt exchange and a revised labor deal.
The companies also are trying to convince the government to extend
up to $21.6 billion in additional loans to carry them through a
worse-than-anticipated global sales slump.
-By Sharon Terlep; 248-204-5532; sharon.terlep@dowjones.com.