GM To Offer Tougher Deal To Bondholders

GM To Offer Tougher Deal To Bondholders
Posted By: Michelle Caruso-Cabrera | CNBC Reporter
| 09 Apr 2009 | 11:53 AM ET


The auto task force, lead by Steven Rattner, wants GM to emerge with as little debt as possible once the restructuring process is done, according to numerous sources familiar with the situation.

As a result, GM is expected to offer its bondholders a much tougher offer than the one they rescinded last week.


CNBC has learned exclusively the new offer could include no cash, no new debt, and far less equity than was previously offered by General Motors last month; perhaps as little as 10 to 20% of the company.

No new terms have been offered officially, and the parties involved are still hammering out the details.

Also currently under negotiation right now—if the government is willing to take a haircut on the money it has loaned the company so far, or at least move lower in the capital structure, becoming an unsecured debt holder rather than a secured debt holder.

When the US government agreed to loan $13 billion to GM back in December, one of its requirements was that GM must convince its bondholders to accept 2/3 of what they are owed in GM stock, rather than cash.

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    GM has $27.5 billion in outstanding debt held by pension funds, individuals, and firms like John Hancock Investment Management, Legg Mason, Loomis Sayles, Northwestern Mutual Life Insurance, PIMCO, Union Fidelity Life Insurance, and Western Asset Management.

    GM originally offered the bondholders 8 cents in cash, 16 ½ cents in new debt, and stock equaling 90% of the company. The two parties did not reach agreement before the March 31st deadline imposed by the terms of the government loan.

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    Upon expiration of the deadline, the auto task force told GM executives their offer to the bondholders was too generous and they must reduce it further.


    The task force’s rationale: auto sales are even worse than expected when the loan was extended and the company must have an even leaner balance sheet to survive in this environment. Many assumed car sales would rebound to at least 11 million per year, but so far are only running at a pace of 9 million cars a year.

    The Unions will also face a tougher offer than they were previously given say parties familiar with the process.

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