Beltway Snark

No, the Obama administration isn’t trying to nationalize GM and reward those who backed them. Not at all.

Meanwhile, however, bondholders pose a major stumbling block to the restructuring. Under the proposed offering which GM filed with the Securities and Exchange Commission, investors holding $27.2 billion of GM bonds would swap those bonds for 10 percent of the equity shares of the restructured company. The United Auto Workers would get up to 39 percent of the company in return for half of the $20 billion GM owes to a health fund for retired workers. Current shareholders would get 1 percent of the new shares.

The Treasury said that to meet restructuring goals and to fulfill bond covenants, the restructuring proposal must win the support of 90 percent of the bondholders, an uphill battle because bondholders and analysts said the union had received more favorable terms even though its legal claim in bankruptcy court would be equal to the bondholders’. Investors who bought GM bonds in 2003 are particularly upset at being portrayed as obstacles because those bonds were used to provide funds for GM workers’ pension plan.

“We are deeply concerned with today’s decision by GM and the auto task force to offer only a small, inequitable percentage of stock to its bondholders in exchange for their bonds,” advisers to an ad hoc group of bondholders said in a statement last night. “We believe the offer to be a blatant disregard of fairness for the bondholders who have funded this company and amounts to using taxpayer money to show political favoritism of one creditor over another.”

Some advisers said that GM bondholders, if they are patient, might get more money from a bankruptcy proceeding than they are being offered under the new restructuring plan.

And it gets better…guess how much of the company the government wants for it’s $18 mil that will balloon to $27 mil under this plan. 50 percent. This isn’t just fuzzy math, it’s eff investors in the ass math. Of course the bondholders are pissed, and who can blame them? I hope they hold out for bankruptcy now, just on principle.  That and they would actually get a fair deal.