GM bondholders raise red flag
March 22, 2009: 7:27 PM ET
DETROIT (Reuters) -- Financial and legal advisers to General Motors
Corp. bondholders, in a letter Sunday to the White House group
overseeing the automaker's turnaround effort, raised new concerns about
GM's stalled debt restructuring.
The open letter to Treasury Secretary Tim Geithner and other members of
the U.S. autos task force marked an escalation for GM bondholders who
have been arguing for weeks that the automaker's proposed restructuring
would leave it too heavily indebted and facing an uncertain economy.
"We are concerned that the company is putting too much faith in a
near-term turnaround in the economy that would enable annual car and
truck sales to reach previous levels," representatives of GM bondholders
GM's restructuring plan presented to U.S. officials on Feb. 17 might not
go far enough to keep it out of a court-supervised bankruptcy, the
"We do not know if the plan would, in fact, keep the company out of
bankruptcy," the letter said.
The concerns of the advisers to GM bondholders represents a continuing
risk to the automaker's efforts to survive a downturn that has driven
U.S. auto sales to 27-year lows and depleted its cash.
Steve Rattner, a former investment banker who is serving as the lead
adviser to the White House autos task force, said last week in a series
of interviews that bondholders had been less "constructive" than the
automaker's major union, which is also being pressed to change the terms
of funding it is owed.
GM (GM, Fortune 500) has over $27 billion in bond debt held by investors
who have been asked to surrender a claim on two-thirds of the principal
in exchange for equity in a recapitalized company or another payout at
near 33 cents on the dollar.
The automaker faces a maturing set of bonds worth some $1 billion in
June and will have to get thousands of investors to agree to swap out of
their holdings to make any deal work.
U.S. officials have so far been cool to suggestions from bondholders
that they offer a guarantee on GM's remaining debt in order to sweeten
the terms of its debt exchange, a step that would expand the scope and
cost of the government bailout.
UAW to go first?
With talks on a bond-exchange stalled, expectations are rising that GM
may clinch a deal first on restructuring its retiree health care
obligations with its major union.
Like bondholders, the United Auto Workers union is being pressed to
accept stock in a recapitalized GM in exchange for debt forgiveness.
The UAW is owed roughly $20 billion from GM for a retiree healthcare
fund known as a Voluntary Employee Benefits Association, or VEBA. It
faces pressure from GM to take half of that in equity under the terms of
The UAW says its higher payout ratio is justified because of concessions
the union made in 2005 and 2007 that cut GM's retiree healthcare liability.
In their letter to the autos task force, financial and legal advisers to
GM bondholders suggested that a deal on healthcare could come before an
agreement on how to restructure the rest of its debt.
"We hope that as more details from the UAW agreement become available,
including those relating to the restructuring of the VEBA, the necessary
steps can be taken to ensure that GM is viable," the letter said.
Advisers to GM bondholders had not had a response from U.S. officials or
GM since proposing terms for a debt swap earlier this month at a March 5
meeting with Rattner and other members of the task force, they said in
The bond advisers also warned that time was running out to meet an
end-March deadline for a debt reduction deal.
"Keeping lines of communications open is the only way we all can meet
the March 31 deadline for a debt-to-equity exchange," the letter said.
"We are disappointed that we have had no response to our proposal from
either GM or the auto task force."
The letter on behalf of GM bondholders was signed by representatives of
two firms that have steered the negotiations on behalf of creditors.
Houlihan Lokey Howard & Zukin Capital has been working as the financial
adviser to a committee of GM bondholders. The law firm Paul, Weiss,
Rifkind, Wharton & Garrison also represents the creditor group as counsel.
GM's debt restructuring talks were prompted by the terms of the $13.4
billion in emergency lending approved by the Bush administration in late
December to keep it operating.
GM has asked the Obama administration for up to $30 billion in loans
from the U.S. Treasury and has until end March to demonstrate that it
can be made viable with new aid, further cost cutting and wide-ranging