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General Motors Makes New Stock Offer to Bondholders
General Motors Corp. said today it would offer holders of $27 billion of its bonds as much as 25% of the company provided that they don’t contest a plan to sell the automaker’s assets in a bankrupt cy proceeding.
The new offer, which is backed by the U.S. Treasury and has the likely support of about 35% of bondholders, comes just over a day after an attempt to reduce the company’s unsecured debt was rebuffed by a majority of bondholders.
Striking deals with as many of its stakeholders as possible before it goes into bankruptcy could help GM emerge from Chapter 11 more quickly. It has already reached a tentative contract agreement with the United Auto Workers union. Voting to ratify the accord is expected to conclude today.
Gaining goodwill from bondholders would be an additional important step toward that objective.
The official would not say if GM would definitely file for bankruptcy. But if the company does file, the official said, the process probably would last 60 to 90 days.
Bondholders have until 2 p.m. Pacific time Saturday to accept the deal ahead of the Obama administration’s June 1 deadline for GM to complete its restructuring. But, unlike the earlier proposal, which required 90% of bondholders to accept before it could be implemented, there is no set percentage needed for the latest offer, the administration official said. The administration will make a “judgment call” when the offer expires and decide if the participation is acceptable.
As proposed in a Securities and Exchange Commission filing today, bondholders will receive 10% of the company’s shares after GM emerges from bankruptcy, along with warrants to purchase an additional 15%.
The government would receive an initial 72.5% stake in GM, with a retiree healthcare trust fund run by the UAW holding a 17.5% share.
The bondholders would be able to exercise half of their warrants, or 7.5% in GM equity, once the company has a market value of $15 billion and the remainder when GM’s market value reaches $30 billion. If GM files for bankruptcy, it would no longer be a public company, the senior administration official said. It would probably return to being a public company in 12 to 18 months.
The UAW, meanwhile, would hold warrants to purchase another 2.5% share, but could not exercise those until GM’s market value reached $75 billion.
In all three cases, those warrants would be satisfied by issuance of new GM stock.
Separately, the government of Canada, which is expected to provide GM with about $9 billion in financing support in a bankruptcy, would get an undetermined amount of equity.
The GM that emerges from bankruptcy would have only $17 billion in debt, far less than current levels.
That would be accomplished by using the Bankruptcy Court to split the company in two through a process known as a 363 sale. That would leave the majority of GM’s debts with the portions of the company that are not sold in the bankruptcy process.
“Implementation of this proposal would result in a new GM with a healthy balance sheet, putting the new company on a clear path toward long-term viability and success,” the company said in a statement.
The automaker said that a large group of bondholders, representing about 20% of the total, had already indicated its support for the plan.
“The ad hoc committee of G.M. bondholders supports the revised offer from G.M. and believes that when contrasted with the alternative — uncertain and costly bankruptcy court litigation — that it represents the best alternative for bondholders in the current difficult and dire situation,” the group said in a statement.
An additional 15% bondholders had agreed to the earlier proposal and are expected to accept the sweetened offer, said the senior administration official.
If not enough bondholders agree to the plan, however, their equity stake would be “substantially reduced or eliminated,” the filing said.
Standard & Poor’s analyst Efraim Levy said today that in the event of a bankruptcy filing, GM’s existing shares would be “essentially worthless.”
In midday trading, GM shares were up 2 cents to $1.17. Article Ken Bensinger and Jim Puzzanghera for the Los Angeles Times. Click the link below for more news and information at www.latimes.com. Support your local newspaper and the Los Angeles Times.
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General Motors makes new stock offer to bondholders – Los Angeles Times.
