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Creditors look to work out GM deal

May 13, 2009

Creditors look to work out GM deal

Task force meeting sought this week

BY JUSTIN HYDE
FREE PRESS WASHINGTON STAFF

WASHINGTON — The group representing bondholders with $27 billion in General Motors Corp. debt says it hopes to meet with the Obama administration this week to negotiate a deal that would keep GM out of bankruptcy.

But the group’s financial adviser says the current offer to swap the debt for a small stake in a reworked GM is "designed to fail," would fall apart in bankruptcy court and has no chance to reach the 90% vote from bondholders the administration demands.

"If they go forward with this structure, and don’t make any changes or accommodations to get bondholder support, it will be clear in our view they went out with this proposal knowing it would fail," said Eric Siegert, a financial adviser to the bondholders’ committee.

As with Chrysler, the showdown between GM’s creditors and the Obama administration will determine whether the government steers GM into bankruptcy by the June 1 deadline. With Chrysler’s secured lenders ending their fight against the Obama administration last week, the administration holds the stronger hand.

Under the offer from GM dictated by the administration, bondholders would convert at least $24 billion of the $27 billion in unsecured debt into a stake of no more than 10% in a new GM. The government would take a majority, while the health care trust for retired UAW workers would get 39%.

The committee holding about 20% of the debt has countered with a plan that would give it 58% of the new GM, while giving the government none. The U.S. Treasury, which has lent GM $15.4 billion and would have to offer at least $12 billion more as part of a bankruptcy, wanted the GM stake as part of its drive to cut GM’s debt to the government inside or outside of bankruptcy court.

Siegert, senior managing director of Houlihan Lokey Howard & Zukin, said the committee last met with the auto task force April 30, and that both sides preferred an out-of-court deal.

Siegert also said bondholders were not considering an involuntary Chapter 11 filing, which it could pursue since GM has said it will not make a June 1 interest payment.

But if no deal can be reached, Siegert said the GM bondholders would mount a stronger challenge in court than the dissenting Chrysler lenders.

The holdout Chrysler lenders held just $295 million of the $6.9 billion in debt carried by 46 banks and investment firms.

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