THE EVENT: General Motors Corp. (GM) stepped up its
restructuring plan Monday, saying it will cut thousands more hourly
jobs and eliminate its Pontiac brand by the end of next year. It
will also start an exchange offer for $27 billion of its unsecured
public notes. GM's current market capitalization of $1.28 billion
implies holders of the company's $27 billion in bonds would get
approximately half-a-cent on the dollar - well below the already
distressed levels at which the debt trades. But bondholders' other
options could be just as bad. S&P said it would consider the
debt exchange tantamount to default under its criteria.
Shareholders would be wiped out.
Under the plan, the U.S. government would be the majority owner
in the auto maker in return for an extra $11.6 billion in federal
aid. But GM's CFO said the Obama administration has shown no signs
it wants to run the day-to-day operations of the auto maker.
The exchange will commence only if 90% of bondholders agree to
the terms. If GM fails to get adequate participation in the bond
proposal, it will file for bankruptcy protection.
GM's CFO said it may press a bankruptcy court to approve the
same debt-exchange terms.
The company also said it will cut U.S. dealer count by more than
40% by the end of next year. The company said it will focus on four
core brands in the U.S. - Chevrolet, Cadillac, Buick and GMC - as
it looks to make fewer different models and focus on product
development.
WHAT IT MEANS: GM, which is surviving on federal loans, is
racing to restructure by June 1 under close watch of the Obama
administration. The bond-exchange filing represents an important
step in GM's effort to restructure its company, President Barack
Obama's automotive task force said in a statement. But GM CEO Fritz
Henderson said sufficient acceptance of the debt-swap offer is far
from certain and a Chapter 11 filing is now "more likely."
MARKETS: GM shares jumped on the news. They were recently up 21%
and had risen as much as 34% earlier in the session. GM credit
default swaps are falling. It costs investors $7.9 million upfront
plus a $500,000 annual fee to protect $10 million of GM senior
bonds for one year, according to Phoenix Partners. That's against
$8.4 million upfront before the news.
Following are key stories:
.-UPDATE: GM To Cut 21,000 Hourly Jobs, Eliminate Pontiac
Brand
.-=UPDATE: GM Launches Massively Dilutive Debt Exchange
.-White House: GM Bond Exchange An 'Important Step'
.-GM CFO: If Bond Exchange Fails, Same Terms May Be Used In
Bankruptcy
.-GM Exec: Obama Admin Doesn't Want To Run Day-To-Day
Operations
.-=WSJ:GM CEO: Co. Needs To Be Run Simpler, Leaner In Future
.-=GM Offer Hard On Bondholders, But Choice Still Tough
.-S&P Would Consider GM Distressed Debt Exchange Tantamount
To Default Under S&P Criteria
.-GM Canada Work Force To Drop To 4,400 In 2014 From 10,300 In
2008
.-GM: Will Continue Talks With Possible Opel Investors In
May
.-GM CEO: Co Will Outline Options For Its Dealers In May
-CNBC
.- GM Viability Projects Slide In Market Share