GM's Creditors Push for Bigger Equity Stake

April 30, 2009
Goal is to avoid bankruptcy

General Motors bondholders went public on April 30 with demands for a significantly larger equity stake in exchange for forgiving billions in debt so the ailing automaker can avoid bankruptcy.

The bondholders insisted the U.S. government should not retain an equity stake in GM in exchange for forgiving emergency loans.

It also said the United Auto Workers union should have to swap the entire $20 billion debt owed to a retiree health plan in equity instead of just $10 billion and should be allocated shares at the same rate as bondholders.

"This proposal will save U.S. taxpayers $10 billion in cash, prevents the nationalization of one of the country's largest companies and provides for a fair and equitable allocation of new GM equity across all stakeholder classes," a committee representing the bondholders said.

Under a plan announced by GM on April 27, the automaker's bondholders would get 10% of the company's stock through an exchange of $27 billion in outstanding bonds. The plan is contingent on the U.S. Treasury swapping $10 billion in loans for common stock and the United Auto Workers (UAW) union accepting shares in exchange for a similar level of obligation to its health care funds.

The government and the union would then hold a combined 89% of GM's stock, leaving one percent for the automaker's existing shareholders. The bondholder proposal would grant a 41% stake to the union and a 58% stake to bondholders.

GM is working against a June 1 deadline from the government to come up with a new viability plan or face the end of government credits, which would force the company into bankruptcy.

Bankruptcy is the probable outcome if bondholders don't accept the deal, GM chairman Fritz Henderson has said. "We want to see GM emerge as a stronger and viable manufacturer, providing thousands of jobs and products that appeal to consumers around the world," said Eric Siegert, senior managing director of Houlihan Lokey Howard and Zukin and financial advisor to the bondholder's committee. Siegert said the bondholders "understand that sacrifice and pain is necessary to get to a fair solution of the current financial situation facing GM" and do not believe "nationalizing one of America's largest and most important companies is the right policy decision for our country."

Copyright Agence France-Presse, 2009

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