TOPICS > Economy

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.