GM bondholders raise red flag

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 said.
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 letter said.
"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 GM's bailout.
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 their letter.
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 concessions.
Civis Romanus Sum

Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
Add image file
Upload is a website by car enthusiasts for car enthusiasts. It is not affiliated with any of the car or spare part manufacturers or car dealers discussed here. All logos and trade names are the property of their respective owners.