GM bondholders get crappy deal – UAW better off

I have not had too much time to review the “deal” floated yesterday concerning the restructure of General Motors, but a friend sent me a link this morning to a Washington Post article providing some of the details.

I read part of it, and what caught my eye was that the government, bond holders and the union would all end up owning a percentage of the auto giant. The fed’s $27 billion investment would give them a 50 percent stake in the company. Bond holders with about the same invested would get a 10 percent stake. Finally, the United Auto Workers would get about 40 percent of the company in exchange for $10 billion of the health plan funding for retired workers.

Go back and read that paragraph again please. I’m serious.

I read the information in the article and nothing clicked, until Ed Morrissey over at Hot Air picked up on what I totally missed.

Does anyone at the Treasury do math any longer?  The total sacrifice of all three parties would be $64 billion, of which the federal government and the bondholders are contributing the same percentage: 42.2%.  The UAW will contribute about 15.6%.  Why would the Obama administration expect bondholders to contribute 42% of the solution in order to gain 10% of the company?

Here is the important notes from the Washington Post article. Read the full article.

He [White House press secretary Robert Gibbs] said the government “could have gotten nothing for something, or something for something” and that it insisted on a 50 percent stake to leave open the potential to recover some of the $18 billion the Treasury Department has already lent GM and the additional $9 billion that it would inject under the new plan. …

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.

I understand that GM made a deal with the unions about health care and other benefits. I too understand that those deals were unsustainable in the first place. This deal puts the union way ahead of the bondholders who provided capital to GM at a time of need.

This action will simply ensure that private investors will avoid helping companies like GM and be risk adverse. Why would you want to put your money into a situation where unions and the federal government have the ability to pull strings like this?

But remember – this is exactly what liberal politicians and many Democrats want. They want you to depend on the federal government. It is all about control.

Update: This story is starting to get noticed. From Hinderaker at Power Line…

As we’ve said for a long time, the only way to bring transparency and the rule of law to the issues raised by the troubled automakers is through a bankruptcy proceeding. Instead of that, we have a national-socialist type top-down restructuring carried out by politicians to achieve political purposes. It is deeply ironic, with hindsight, that the Left used to accuse the Bush administration of “shredding the Constitution.”

This is exactly what I expected. Remember this post I wrote in the days after General Motors CEO Rick Wagoner was shown the door?

What if Wagoner wanted to go the straight Chapter 11 route? This would allow the car not-so-giant to restructure while keeping operations rolling, stay protected from creditors, and allow the company to specifically rework union contracts.

Our guess – after review of Obama’s statement yesterday – is that this will not be a straight Chapter 11 bankruptcy, but a more modern union-friendly version using specific parts of the bankruptcy law to avoid having to renegotiate the union contracts.