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As GM Deadline Nears, Bondholders Back New Stock Deal

BY Admin  May 28, 2009 at 11:50 AM EDT

GM headquarters in Detroit; AP file photo

In a statement, GM said that it offered bondholders 10 percent of the company’s stock with warrants to buy up to 15 percent more if they agree to support selling the company’s assets to a new company under bankruptcy court protection.

The U.S. Treasury would get 72.5 percent of the new company’s shares, while a United Auto Workers’ retiree health care trust fund will get 17.5 percent and the old GM would get 10 percent, according to media reports.

GM’s disclosure, which was made in a regulatory filing with the Securities and Exchange Commission, could pave the way for a fast-track bankruptcy backed by the Treasury within days, Reuters reported. It marked the clearest indication so far that GM is close to filing for bankruptcy under the direction of the Obama administration. It would be the largest bankruptcy filing ever for a U.S. industrial company.

Under the new proposal, which is said to be supported by major institutional creditors holding about a fifth of GM’s debt, bondholders representing $27 billion in debt would be offered 10 percent of a reorganized GM — the same stake they had been offered previously.

But to sweeten the deal rejected earlier this week, bondholders would also receive warrants to acquire another 15 percent of the equity in the new company, provided they support a quick Treasury-backed sale process similar to one being used for rival Chrysler.

“The ad hoc committee of GM bondholders supports the revised offer from GM and believes that when contrasted with the alternative – uncertain and costly bankruptcy court litigation – that it represents the best alternative for bondholders in the current difficult and dire situation,” the group said Thursday in a statement.

A bondholders committee and other large debtholders collectively hold about 20 percent of GM’s unsecured debt.

Those bondholders would have until 5 p.m. ET Saturday to indicate they would not oppose the sale process as planned, GM said. If bondholders do not provide those indications, common equity and warrants “would be substantially reduced or eliminated.”

Earlier this week, bondholders rejected a plan that would have swapped their bonds for 10 percent of the company’s equity. It is believed that GM’s bonds are held by tens of thousands of investors, ranging from institutions to individuals.

On Wednesday night’s NewsHour, New York Times reporter Micheline Maynard explained that banks are not the only ones holding GM debt

“You have to remember that GM was not only the largest carmaker; it was the largest company in the United States. And it seemed to be a rock-solid investment,” she said. “So you have individuals who bought bonds maybe for their children’s college education or for their retirement, and they seem to be a very good investment. In fact, the bonds are still trading, and their collective value is more than General Motors common stock.”

Trading of GM shares was halted for a short time Thursday morning, but resumed to rise 18 cents, or 15.7 percent, to $1.33.