GM Bondholders Want a Bailout
Thursday, May 14, 2009SUSIE GHARIB: Meanwhile, as General Motors heads toward a June 1st restructuring deadline, its bondholders want their own bailout. They're unhappy with GM's offer to trade debt for a 10 percent equity stake. Many small investors have big holdings in GM bonds and the outcome will have a big impact on their lives. Erika Miller introduces us to a family counting on those bonds for their future.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Jim and Marge Modica purchased their dream house nearly a decade ago for their retirement. Their lifestyle is supported almost entirely by interest from General Motors bonds.
JIM MODICA, GM BONDHOLDER: Maybe I did the wrong thing. I went with one company that I thought was very secure. We didn't want risk. We didn't want equity. We wanted something secure. And we thought, gee, General Motors, world renowned cars around the world.
MILLER: The couple spent about $700,000 on GM bonds, nearly all their life savings. The bonds pay $80,000 a year in income. Under GM's proposed reorganization plan, the Modicas say their investment would be virtually worthless. The personal toll has been equally as devastating.
MARGE MODICA, GM BONDHOLDER: Emotionally, it has been very tough since last fall. It's been a long -- between the kids, they are worried about us, have them worry about us and we're worried about them. Everybody is worried about everybody.
MILLER: That's because other family members also invested in GM bonds, including two of their sons and Jim's younger brother Mark.
JIM MODICA: We talked about this revolutionary technology that's coming. We are going to have electric cars. They are selling cars in China. They built a plant in Russia. This company is just expanding. And it's going to be bigger than it ever was. And my brother said, you know Jim. I think you are right and my son said, absolutely.
MILLER: In fact, the Modicas are still optimistic about GM's turnaround prospects, which explains why they haven't sold the bonds. But Marge does have some advice to help others avoid the same financial predicament.
MARGE MODICA: Diversify. You have to have a back-up plan. You can't rely on one thing, no matter how reliable you think that place is. Like GM, we thought GM was secure. But nothing is a guarantee.
MILLER: Marge says she's prepared to go back to work, if needed. Jim's biggest fear is having to rely on his kids for financial support.
JIM MODICA: As a father, the last thing you want to do is come to your children and say we need help. That's the last thing a father wants to do. A father is there for his children and that's something I have always lived for. And I can get emotional when it comes to that.
MILLER: Both say they're focusing on the positives in their life, like their 14 grandkids, staying true to their philosophy of counting their blessings, even in the most challenging times. Erika Miller, NIGHTLY BUSINESS REPORT, Manorville. New York.
