GM Says Chrysler-like Deal Best Bankruptcy Option

[Purveyor]

Source: Reuters

DETROIT, May 14 (Reuters) - General Motors Corp (GM.N) on Thursday said that if it files for bankruptcy it would most likely pursue a quick sale of its best assets to a new operating company similar to the process now reshaping Chrysler LLC.

The disclosure, which came in a filing for U.S. securities regulators, marked the first time that GM said it would most likely pursue the same legal strategy that Chrysler is using under federal oversight to slash its debt and dealerships.

GM faces a June 1 deadline to restructure its bond debt and reach a sweeping new deal with its major union.

The automaker repeated in its filing with the U.S. Securities and Exchange Commission that it expected to file for bankruptcy if not enough of its bonds are tendered in exchange for shares by that deadline.

As part of its restructuring now headed by Chief Executive Fritz Henderson, GM has had legal advisers mapping out a strategy if it is forced to file for bankruptcy.

Read more: http://www.reuters.com/article/wtUSInvestingNews/idUSN1434561820090514

[pacalo]

1. I believe my friend's husband was recently laid off by Saturn.

He's been employed by GM since the 1970s; with Saturn since the late 1980's. She said in a recent e-mail that he was taking "a leave of absence" from Saturn to work with a contractor in Iraq for a year. I think she was too proud to tell me he was laid off, so I didn't ask questions.

I've known that Saturn has been in serious trouble &, according to the Wall Street Journal, it's been projected to go out of business this year. I feel so awful for them, but he's the can-do, go-getter type who will bounce back quickly.

[Yupster]

2. The bondholders aren't going to agree

to the plan they've been offered that they are voting on right now.

Can't the President offer them 50 cents on the dollar to get out of the way? They would take that deal and it would be less than $ 15 billion.

[CTyankee]

3. I am a GM bondholder and that deal is lousy. My broker and I discussed it

and there is no good option. The deal they want must be approved by 90% of the bondholders and I can't see anybody in their right mind agreeing to it. I am waiting to hear from my broker if there is another option (which I doubt), i.e., if I can hold on to my preferred stock w/o getting the income until the company starts making money again. I'm doubtful that it is an option, but hey, I don't have anything to lose at this point. My back is against the wall...

[Yupster]

4. You should have gotten a packet to vote on by now

Your broker can probably vote for you.

You have three options.

1. Accept the trade of your bonds for common stock
2. Accept the trade of some of your shares.
3. Decline the deal and keep your bonds.

They really didn't give you any option. The deal is grossly unfair. They are offering pennies on the dollar and if you take the deal and the company goes bankrupt a year from now you'd go into bankruptcy court as a stockholder instead of a bondholder which means you'd go from first in line to last in line. It's worse than a lousy deal. It's a slap in the face.

Maybe after the bondholders turn the deal down the President will come up with $ 15 billion to pay the bondholders off 50 cents on the dollar. Then they'd be taken care of and he can restructure the company however he wants to. What's another $ 15 billion at this point with a $ 1,800 trillion deficit.

[CTyankee]

5. It's the common stock "split" deal that really sucks.

I got a phone call; I'll prolly get the packet soon. My broker has consulted with his bond dept. and other bond dealers. Bloomberg also has details on it.

50 cents on the dollar is what I was hoping for.

But I simply can't feel sorry for myself. My other investments are doing fine. I'm ok and my family is ok. There are lots of people with bigger worries than this...

[Yupster]

6. Glad you're okay but

just because you'll be okay doesn't mean people should be able to treat you unfairly.

In this proposal the bondholders are giving up $ 27 billion for 10 % of the stock.
The treasury is giving up $ 10 billion for 50 % of the stock.
The UAW is giving up $ 10 billion for 39 % of the stock.

The bondholders are not being treated fairly.

[CTyankee]

7. Yes, I know. Especially someone like me, not a big roller.

I think we're being held responsible for GM's disastrous policies. We "misgoverned." Not that I had any control over the policies...:shrug:

[Yupster]

8. That's why it's so unfair to you and the other 100,000 GM bondholders

Bondholders have no decision-making stake in the running of the company. They just loaned it money.

Now stockholders can vote on the Trustees, propose rules and direction for the company for votes, and appear at the stockholders meeting to voice their opinions and concerns.

Bondholders have none of those rights.

The system actually works very well. Stockholders have the decision-making power, but if the company goes under they are last in line to get anything. So the stockholders will do everything they can to keep the company afloat.

Bondholders have no decision-making authority, but they are first in line to get what's left in case things go wrong.

So it's not just grossly unfair, but it's actually scary when the bondholders get taken advantage of like this. This system has functioned for hundreds of years, but if bondholders think their rights will be trampled on if things go wrong, there won't be any bondholders next time when companies want to borrow money.

[Psephos]

9. Well and simply said. Many on this board could learn from you.

The vilification must stop. Bondholders are legally and morally owed repayment, protected by the rule of law. They loaned the company money in exchange for collateral and a first-dollar position in bankruptcy. This is the fundamental mechanism of credit in our economy, and it is playing Russian roulette with the devil to subvert it.

[CTyankee]

10. Why is the administration doing this to us?

I don't understand.

[Yupster]

11. I think bondholders are just in the way

The President wants GM to survive and would like it to be an employee owned company.

So bondholders are just in his way.

[CTyankee]

12. But it is such a lopsided deal. Obama had said everbody was going to get a "haircut."

I didn't think only one group of people would get a beheading.

[Yupster]

13. There's an interesting contrast with Bill Clinton

Early in his administration his economic team was debating the deficit.

The subject was Clinton's middle class tax cut that he had promised during the campaign. But once he got in his economic team said the budget couldn't afford it. If you let the deficit explode it will scare the bond market was the opinion of his economic team.

James Carville famously protested. "Fuck the bondholders," he reportedly said adding that he doesn't know any bondholders.

This is where Bill Clinton's basic conservatism came out. As a governor he had dealt lots with businesspeople. He did know bondholders.

In the end President Clinton went on tv and announced that he really wanted to do a middle class tax cut but he couldn't afford it.

To me this is a real test of what type of a president President Obama is.

Not having ever been a governor or having ever run a business, President Obama may not know a lot about bondholders. You would think as a lawyer he would know the bankruptcy laws though.

President Obama may not be a basically conservative person who wants to tweak the system and make it more people-friendly like President Clinton. He may be a more radical leader who wants to tear down parts of the old system to create a new better one. I suspect most DU'ers hope he is the latter.

In that case it will be fuck the bondholders. Regardless of the law, they're in the way and need to make way.

To me this is a very interesting case to watch closely.

[CTyankee]

14. Comparatively speaking, tho, I am not a rich investor. My investment in GM isn't that big.

And GM was aggressively selling these Preferred stocks a few years back to ordinary investors w/o a big portfolio, like me. At the time, my mother needed an income producing product as she was being moved from assisted living into a Special Care Unit because she had developed dementia. And we had money from the sale of her house (again, it was a modest home -- she made money off the deal because she had bought it for a lot less back in the 70s, but it sold for about $125,000). We invested less than half of the sale into GM.

So I don't know why the issue of any kind of "class warfare" should apply here. Why would a Democrat be so hateful towards the ordinary middle class investor? I still don't understand that...

[Yupster]

15. Most GM bondholders are people just like you

There are 100,000 individual investors voting on the offer right now.

[CTyankee]

16. If we don't go for it, won't we lost all our money in the bankruptcy anyway? nt

[Yupster]

17. Who knows ?

In bankruptcy, bondholders are first in line to get whatever's left of the company.

If the company goes Chapter VII, then everything is sold and the bondholders get what's there.

If the company goes Chapter XI, then the bankruptcy court will issue new company stock to the bondholders, almost certainly far above the 10 % this deal is offering.

There is also the chance of a last minute "new" offer that's better than this one. I don't understand why the President doesn't just buy the bondholders off with a last minute $ 12 billion offer. They'd go for it, and what's another $ 12 billion to the President who's sitting with a $ 1,800 billion deficit for this year alone.

The worst case is to accept the deal, then the company goes bankrupt a year from now and then you go into the bankruptcy court as a stockholder instead of a bondholder. Then you go from the front of the line to the back of the line to recover any remaining value.

Just my opinions of course. Don't go by guys telling you stuff on the internet. You need to talk to your broker or other professionals to get advice you can trust.

[CTyankee]

18. Thanks, I just finished a call with my financial advisor.

He said there was no way the big institutional fixed income money managers are going to stand for this deal. I feel better knowing that I have some real muscle behind me in this fight.

Also, he told me that I have something called GM Senior Shares, which apparently are further up the ladder than ordinary preferred stock. He said that GM was going into Chapter 13 and will end up in a judge's hands where we'll stand a better chance of getting something more substantial back. At this point I'd be grateful for 50 cents on the dollar.

Oh, and he said "You never take the first offer. Never."