GM's Small Bondholders Voice Protest To Survival Plan
April 29 2009 - 11:59AM
Dow Jones News
General Motors Corp.'s (GM) small bondholders became the latest
group to protest the auto maker's survival plan, gathering
Wednesday to speak out against a debt exchange offer that would
leave them with just cents on the dollar.
GM has said at least 90% of bondholders must agree to a
debt-for-equity swap launched on Monday or else the company will be
forced to restructure in bankruptcy court.
While they hold a small share of GM's debt - around one-fifth -
relative to larger financial institutions, the strong negative
reaction from individual bondholders underscores the challenge GM
faces in getting its offer to succeed.
On Wednesday, a group of bondholders gathered the town center of
Warren, Mich. to protest GM's plans. Several bondholders shared
stories of how they came to own GM bonds. Organizers strove to
strike a folksy tone with a guitar singer in the background and
signs about saving "Main Street" investors.
"Bonds are a loan, they are not a speculative stock," said Chris
Crowe, a retired electrician from Denver who said he'd been relying
on GM bonds to send his son to college.
GM is asking bondholders to swap up to $27 billion in unsecured
debt for a 10% company stake. If bondholders tender less than 90%
of the debt, GM says it is prepared to file for bankruptcy
protection.
Under GM's plan, the U.S. government, supporting the auto maker
with $15.4 billion in loans, would get half its debt repaid. The
United Auto Workers would get 40% of what GM owes for a retiree
health care trust.
A group representing bondholders rejected the plan and said it
would make a counteroffer.
The small bondholders' move to organize and make a case follows
similar attempts by salaried retirees and auto dealers who would
also lose big under GM's plan.
GM's current market capitalization of $1.28 billion implies
holders of the company's bonds would get around half-a-cent on the
dollar - well below the already distressed levels at which the debt
trades. Optimistic scenarios put the equity's worth at 8 cents to
10 cents on the dollar.
A bankruptcy filing, however, could be much worse. There are
many other claims on the company, and costly and time-consuming
litigation could drain even more value.
-By Sharon Terlep, Dow Jones Newswires; 248-204-5532;
sharon.terlep@dowjones.com.