GM May Not Have Time for Bond Swap Outside Bankruptcy (Update2)
March 31 (Bloomberg) -- General Motors Corp. bondholders doubt a debt
exchange will succeed outside of bankruptcy because there isn’t enough
time under the Obama administration’s 60-day deadline, according to a
person familiar with the thinking of the committee representing creditors.
A prepackaged bankruptcy is more likely to work in slashing
Detroit-based GM’s debt, said the person, who declined to be identified
because the discussions are private. The deadline is too tight to get
enough bondholders to swap their debt for equity voluntarily, the person
If GM proposes a deal that the bondholder committee supports, a
prepackaged bankruptcy would be achievable, the person said. While the
panel doesn’t represent two-thirds of the $27.5 billion in bonds GM is
trying to exchange, enough investors have indicated they’d back the
committee’s decision to make a prepackaged bankruptcy attainable, the
GM is racing against the timetable set by President Barack Obama’s task
force because the panel found insufficient progress toward viability in
the three months since the biggest U.S. automaker received $13.4 billion
in federal loans.
‘Accelerating the Speed’
“Our focus is on accelerating the speed of our operational restructuring
and reducing liabilities and debt,” said Renee Rashid-Merem, a GM
spokeswoman. “During the next 60 days, we will work aggressively on
restructuring our financial obligations with bondholders, unions and
Bondholders have been reluctant to exchange their debt for about $9
billion in debt and equity as part of GM’s requirements to keep its U.S.
aid. GM also hasn’t agreed with the United Auto Workers on how to shrink
$20.4 billion in obligations to a union-run health-care fund.
GM bondholders should accept some losses as the automakers struggle to
lighten their debt load, said U.S. Senator Richard Shelby of Alabama,
the top Republican on the Senate Banking Committee. Debt holders at
Chrysler LLC, which also is being propped up with federal aid, should do
the same, he added.
“The bondholders are going to have to take a real haircut, otherwise
they could wind up empty-handed, or close to it,” Shelby said in a
Bloomberg Television interview. “What they are betting on is that the
taxpayer will continue to pump money year after year into General Motors
GM must cut debt and improve cash flow, and likely will have to get rid
of more jobs and plants, Chief Executive Officer Fritz Henderson said at
his first news conference since succeeding Rick Wagoner, who left at the
task force’s request.
‘Get It Done’
“We’ll get it done in court or we’ll get it done out of court,”
Henderson said in Detroit. “But we will get the job done.
GM fell 76 cents, or 28 percent, at 4:15 p.m. in New York Stock Exchange
composite trading. It was the biggest drop since Oct. 8, pushing the
shares’ decline to 46 percent in the past two days on concern that GM
won’t be able to avert bankruptcy.
GM’s $3 billion of 8.375 percent notes due in July 2033 slid 3.9 cents
to 12.1 cents on the dollar, yielding 68.6 percent, according to Trace,
the bond-pricing service of the Financial Industry Regulatory Authority.
Credit-default swaps on GM bonds rose for a second day on concerns the
automaker would be forced into court protection.
The price climbed 2 percentage points to 83 percent upfront, according
to broker Phoenix Partners Group. That’s in addition to 5 percent a year
for five years, meaning it would cost $8.3 million initially and
$500,000 annually to protect $10 million of the automaker’s debt.