GM Bondholders Say No To Debt-For-Stock Offer

GM’s debt-for-stock offer to its bondholders expires tonight. The company needs 90% of the bondholders to agree but has a fraction of that, notes CNN, which almost assures a bankruptcy filing in the coming days. We say “almost” because it’s possible the Treasury Department will extend talks with bondholders until June 1st, when GM’s other deadlines hit.

“GM bondholders reject offer” [CNN]
(Photo: dregsplod)

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  1. DH405 says:

    They’d rather lose everything in a bankruptcy where the gov’t will help the company restructure, shedding those obligations?

    Smarrrrt.

    • xthexlanternx says:

      @SMSDHubbard:
      In a bankruptcy, the secured creditors (the bondholders) are the first to get paid. My grandparents own a significant amount of GM bonds (I don’t know how much but its over $250,000 worth– a large chunk of their life savings). Since they obviously have a lot invested in GM, they asked for opinions from nearly every advising service that would hear them. Every single adviser told them to vote no. GM and the federal government are trying to screw the bondholders in favor of organized labor. This isn’t to say that the workers don’t deserve more, but the bondholders bought these bonds on the premise that they were secured creditors.

      • AldisCabango says:

        has we all know with Chrysler. Obama will shame your grandparents,because they are greedy speculators who are responsible all the countries problems, into accepting 10 cents on the dollor while giving labor unions the company

    • MooseOfReason says:

      @SMSDHubbard: It makes more economic sense to have them enter bankruptcy court and have their assets bought by a competent company, than have the government restructure/run an automobile company. Maybe they’ll merge with Ford.

      • GearheadGeek says:

        @MooseOfReason: I don’t think Ford needs them.

      • Trai_Dep says:

        @MooseOfReason: Since the article quotes a source saying, “However, if GM does go into bankruptcy, the source said that Treasury believes the bondholders would likely get even less than what was offered,” it appears that SMSD is more on the money than you.
        Unless you have more expertise than the source. Is that likely?

        • craptastico says:

          @Trai_Dep: you don’t seem to have the slightest idea how the bond market works. GM offered the bondholders about 4-5 cents on the dollar, the bond market as of last week was offering 7-9 cents on the dollar. anyone who was happy with this offer could have simply sold their bonds on the open market for more. bondholders are owed approx 28b, UAW 20b, and the gov’t 20b, why would bondholder accept only 10% of the company, while UAW got 39% and the gov’t 50% of the company? the bondholders are getting royally screwed by this deal

        • MooseOfReason says:

          @Trai_Dep: Is that the same Treasury that blackmailed banks to take bailout money?

          Hmm. Who should I believe? Shady, corporatist gangsters in our government, or Adam Smith and Peter Schiff?

          • Trai_Dep says:

            @MooseOfReason: Guys, you’re blaming the fire department for wetting your drapes as they put out the inferno that your drunken, stupid uncle started. It doesn’t seem especially rational. Or fair.

            • MooseOfReason says:

              @Trai_Dep: I’m sure Greenspan has none of the blame for pumping gas into the house and expecting no problems when someone lit a match.

    • Trick says:

      @SMSDHubbard:

      Bondholders will lose everything even though they are secured creditors so unions can the government can take ownership.

      If the unions and the government succeed, let that be a huge lesson to future bondholders. Why invest when the government will tell you to get bent so the unions can make out like bandits?

    • vastrightwing says:

      @SMSDHubbard: This is comical: “Hi, I’m from the Government and I’m here to help you.”

      • Trai_Dep says:

        @vastrightwing: Wow, if only the above people commenting on SMSD’s post had been half as vocally critical from 2000-2008, and we wouldn’t have been in half this financial/auto sector mess, would have had 1/10 the deficit, gas would be a bit over $1/gallon, a couple trillion in equity wealth wouldn’t have evaporated AND we wouldn’t have pissed away $3,000,000,000 in Iraq.
        Shame, that.
        Oh well. Hey, let’s kick the shins of the firemen trying to rescue the burning house, instead!

        • Lordstrom says:

          @Trai_Dep: Since GM is a crackhouse, it shouldn’t be saved.

        • Tux the Penguin says:

          @Trai_Dep: Excuse me Trai? 1/10 of the Deficit? The new Congress and President are spending so much more than Bush ever did. Even counting in the War in Iraq (which the current administration also does not do, just like Bush) this administration is spending in deficits than Bush did in nearly the last three years!

          That being said, there is a normal progression in bankruptcy laws. And many of these bond-holders have Credit Default Swaps. So if GM goes bankrupt, those policies pay out. Last I heard, GM/Government was offering 10 cents on the dollar or something ridiculously low. Most CDS’s pay more than that.

          Doesn’t matter. We’re about to see the new era. And then in a few years we’ll hear the government complaining that no one is buying corporate paper/bonds…

          • GearheadGeek says:

            @Tux the Penguin: I’m afraid you’re wrong about the Iraq spending… part of the reason the current budgets look so shocking is that they finally ARE budgeting money fairly realistically for the wars in Iraq and Afghanistan, instead of continually funding it with “emergency appropriations” and pretending they were fiscally responsible.

  2. laserjobs says:

    Why doesn’t the government just give GM Bondholders all that free money we send into the IRS?

    Just like what they did with the banks.

  3. jayphat says:

    Who here can honestly say they did not see this coming? Even better, who wants to make a bet that Obama is on tv in the next 2 days calling these people “speculators” and blaming them for everything thats wrong with GM?

  4. William Brinkman says:

    @SMSDHubbard: Congratulations on knowing nothing about the bankruptcy process. The internet welcomes your opinion.

  5. Snarkysnake says:

    Amid all the argle bargle about who gets screwed in a bankruptcy,I think that everybody ought to look at what waits on the other side.It might be surprising. Few bankruptcies are painless or “surgical”,whatever that means.

    The players:

    GM management. Lots of soon to be ex- management. Pontiac,Saab,Hummer and Saturn will join Studebaker,Packard and Stutz in the great junkyard of the hereafter. GM will be radically smaller.

    Shareholders (Old GM). Will get a penny on the dollar.Hard to find any winners here.( I told Consumerist readers not to speculate in GM shares last fall,did you listen ?)

    Dealers.The survivors will probably be stronger,now that they are not competing with a dozen more just up the road. But that will only help them if GM starts building a car that people want to buy.

    UAW. Be careful what you wish for,guys. When you get a huge chunk o’ the new GM,you will become what smart investors are avoiding right now : Owners of a poorly run auto company. All of your militancy against management and ownership will affect…You. When you goof off or screw the company with a contract or work rules,you are going to ,in effect,be screwing yourselves.(Back in the early 90′s,United Airlines employees took over their company. It went bankrupt a few years later amid MUCH acrimony). I think we will soon see battle lines drawn between current union workers and retirees,when the current workers realize just how much those gold plated benefits cost.

    Bondholders.This will be interesting. Secured bondholders should get out with their investment intact.Junior and subordinated holders…It don’t look good.Bank debt will be made whole. Trade creditors should be OK because their parts are needed to keep operating.

    Taxpayers. The biggest losers. The money that our government has shoveled into this blast furnace is gone. Wasted. Pissed away.

    The big winners ? The former management and boards of directors that got filthy ,stinking rich while running it into the ground. Lucky customers that got a good car.

    • Trick says:

      @Snarkysnake:

      Good point about the dealers… the strong will succeed but often strong also means Bill Heard type of dealers…

      After all, where will you go when Chevy in Town A won’t deal? Drive 200 miles to the Chevy dealer in Town B?

      If anything, the dealers will continue to add to the problem with their sleazy tactics.

  6. trixrabbit says:

    dear mr. (ex-)ceo waggoner,
    you’d never file for bankruptcy? it’s not an option?
    you’re a fuckin’ idiot. i want all my money back on that stupid p.o.s. saab that i purchased from your company.
    actually, i rescind that remark. i’m the idiot believing that gm could do good. i’m stupid.

  7. bbvk05 says:

    GM’s bondholders learned their lesson from the way Chrysler was handled. Why should they give up their legitimate claims to have the administration hand over a majority stake to UAW only to have to company proceed to bankruptcy anyway? Chrysler’s bondholders got SCREWED by the administration. GM’s bondholders would have to be morons to fall into that trap.

    • Trai_Dep says:

      @bbvk05: You might want to read papers, and reputable ones at that.
      Chrysler was driven into bankruptcy because the vulture funds holding bonds refused to accept anything less than face value. And they bought bonds from a highly distressed company precisely for speculative purposes, so they’re even less deserving of their claims than the many other bondholders they dragged down with them.
      Operating off so many faulty assumptions, no wonder you’re so angry. Work on that, OK?

      • Tux the Penguin says:

        @Trai_Dep: Trai, do you not care about contracts and the rule of law?

        At the end of the day, if I have a contract and the legal tradition of the company on my side saying I get first dips in the bankruptcy, it doesn’t matter how I got to that point. To then tell me “no” is to spit on contract and the rule of law.

        The bondholders were not necessarily a bunch “vulture” funds. Are pension funds “vultures”? Beyond that, the “vultures” have a fiduciary duty to get the best returns for their clients. How would you feel if your stock broker suddenly accepted half of what you think you should get for all your investments?

        • Trai_Dep says:

          @Tux the Penguin: UAW and the Big Three also had contracts, but I guess those rules of laws don’t count, right? You can’t have it both ways, I’m afraid.

          And, part of buying a bond is assessing the quality of it. There’s a whole industry that does nothing but perform this task. Thus, in the real world, default is always a lurking risk. It’s what sets rates.

          It’s not tragic that bondholders are now claiming that they had no idea that buying bonds entailed some level of risk, but rather, that unschooled, unsophisticated people actually believe it.

  8. Skankingmike says:

    This country is skating dangerously close to a socialized government. At least unlike say Hugo Chavez, Obama is offering money to the companies he’s “nationalizing”

    • twistermoves says:

      @Skankingmike: The most ridicolous thing is that the American government killed my entire family because we had a political system the Americans didn’t see fit to agree with.

      You killed them all and now you’re just doing what my government did…not my parents mind you, my government. But my people had to die to protect your capitalism.

  9. grapedog says:

    hold the line bondholders!

  10. Dr. Eirik says:

    I think the big picture being missed here is the flouting of the normal bankruptcy laws. This has less to do with GM and more to do with companies in the future trying to raise money. Prior to all this, the secured bondholders had certain guarantee about what they could expect if they invested in a distressed company. They might not make money, but they were at least promised (and legally backed) to get some funds back if things went completely south.

    Now? It apparently is meaningless if the administration simply wants to jump other creditors ahead of you. So now if you’re the CEO of Wigets of America, Inc, and you need to raise money to stay solvent during the recession, the Obama administration just made

  11. Anonymous says:

    This was an easy decision. I advised my clients not to take the deal offered for their bonds. The true details of the deal really haven’t been reported. Basically, 225 shares per thousand of bond held. THEN they would do a reverse split of 1 for 100. Ok…great my 10000 dollar bond would get 2250 shares, reduced to 22 shares (why 22 shares? because no odd lots aloud…so I now have to BUY more to have 23 shares or walk from the extra. So here is the problem, normally as a bond holder, I’m in line given a bankruptcy, but as a stockholder, basically a total loss. Now I realize that were circumventing the bankruptcy laws and that as a bond holder, normalcy may not hold true. But I still like my position as a bondholder than that of an equity position should GM in fact file bankruptcy. Apparently I wasn’t alone as to saying no thanks to the deal that was offered. Now time will tell as to whether it was the right decision.