US: Bondholders call GM offer "neither reasonable nor adequate"
General Motors' equity-for-debt offer has drawn a sharp response from advisers to the ad hoc committee of GM bondholders.
"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," the advisers said in a statement.
"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.
"[Monday's] posturing makes it clear that the company and the auto task force would rather discount the thousands of individual investors and retirees who own GM bonds than undergo earnest negotiations.
"The current offer is neither reasonable nor adequate. Both the union and the bondholders hold unsecured claims against GM. However, the union's VEBA would receive a 50% recovery in cash and a 39% stake in a new GM for its US$20bn in obligations; while bondholders, who own more than $27bn in GM bonds and have the same legal rights as the unions, would only receive a mere 10% of the restructured company and essentially no cash.
"The offer was made unilaterally, without any prior discussion or negotiation with bondholders and in spite of repeated calls for dialogue.
"Bondholders and GM have the same basic goal - to restructure the company in a consensual manner, thereby creating a leaner, more competitive GM. In order for GM to emerge from this restructuring process as a profitable entity, all stakeholders should be prepared to make deep, yet equitable, sacrifices. Bondholders remain willing to make such sacrifices and ask only that others do as well.
"We are deeply concerned that GM waited until late April to make its offer. GM CEO Fritz Henderson even admitted that getting 90% of the company's bondholders to agree to a debt exchange within a month would be 'a tough task,' given the company's large amount of retail investors, who hold some $6bn in bonds.
This offer demonstrates that the company and the auto task force, unfortunately, are pinning their hopes on an extremely risky and legally questionable turnaround in bankruptcy court, instead of engaging its lenders and workers in the very type of negotiations that could avoid such a fate.