Jim spoke on Thursday morning about the “deal” being offered to the bondholders of General Motors which, if accepted by them, will presumably keep GM out of bankruptcy. I say presumably because this “restructuring” has all of the earmarks of failure that are found in the Chrysler plan, but without the help of Fiat. However, I digress.
On the chance you missed it, there was a wonderful opinion in the April 30, 2009 Wall Street Journal aptly titled, “Gettelfinger Motors“. It is definitely worth the time it will take you to read it. Here’s how the “equitable” restructuring of GM would work.
There are three groups of GM creditors that, as a matter of law, would be on similar footing in the Bankruptcy Court… the federal government, the UAW’s retiree health-care benefit trust, and the bondholders. The federal government is owed $16.2 billion, the UAW benefit trust is owed $20 billion, and the bondholders are owed $27.2 billion. One would assume that if the plan was to swap debt for equity in the “new” GM, that the debt/equity swap would be done fairly and proportionately. But, I’m guessing by now, you know that isn’t the plan.
The federal government would receive 50% of the stock of the “new” GM, and $8.1 billion in debt. The UAW retiree health-care benefit trust would receive 40% of the stock, and $10 billion in cash to be paid over time, and the bondholders, who are owed the lion’s share, would receive 10% of the stock and, well, nothing else.
But, here’s the best part.
GM CEO Fritz Henderson says Treasury insisted that bondholders receive, at most, 10% of the company. “We went to the maximum and offered 10%,” Mr. Henderson said. Mr. Rattner’s office did not return our calls, so we can’t say why Mr. Rattner [Obama’s car czar]wanted private risk capital cut out of the ownership of the new GM, but no one has contradicted Mr. Henderson. (emphasis supplied)
So, let me see if I have this right. The entity that is owed the least amount of money out of the three, not only receives the most equity, but also gets to direct how the pie will be divided. I’m guessing that Richard Wagoner, the former CEO of GM, would never have stood for this. Thus, he was “fired” by the Obama Administration.
However, more problematic is President Obama’s insistence that it is the bondholders who are the greedy ones. Is anyone else tiring of hearing our President say one thing only to find out that the facts are quite different?