GM Debt Holders Likely To Get Lemon
December 4, 2008
I drove a Pontiac Fiero in the late 1980s. I was VERY young and didn’t do much research on the products I bought, not that chatter about engine fires would have deterred me. That car was sweet. And red. And while it never caught fire, they did recall it once or twice. Eventually, I traded it for a Toyota pick-up—more reliable, still red.
General Motors Corp. debt holders will likely be offered an exchange themselves soon, though not one they’ll consider an upgrade. If Congress agrees to a $34 billion rescue package for The Big Three—and as much as lawmakers like to strut and squawk in a show of opposition to such things, it probably will—part of GM’s restructuring plan is to reduce its debt burden by more than half.
In the pages of its plan, which it submitted to Congress, GM said it “will immediately engage current lenders, bondholders and its unions to satisfactorily negotiate the changes necessary to achieve [its sought after] capital structure. Oversight board involvement may be necessary to be successful.”
Hmmm. That last part doesn’t sound good. Apparently, Standard & Poor’s doesn’t think so either. The rating agency on Thursday lowered its corporate credit rating on GM to CC from CCC+ and lowered the ratings on the company’s senior secured and senior unsecured debt.
“We believe the most likely scenario is that GM will offer to exchange some or all of its outstanding debt for equity or new debt at a steep discount to face value,” S&P analyst Robert Schulz said. “Given GM’s weakening liquidity position, we consider such an offer to be a distressed exchange and, as such, it is tantamount to a default.”
S&P’s analysis of the situation can be described as gloomy at best. Even if government support allows GM to avoid a bankruptcy filing, the company’s corporate credit rating won’t likely rise out of the triple-C category after its restructuring. This is because S&P, along with everybody else, expects the global economic crisis to continue for another year or more. Or at least it doesn’t expect a lot of folks to run out and buy cars anytime soon.
So where does that leave GM debt holders? Basically screwed. Soon the federal government will choose between a restructuring plan with a lousy debt exchange, or Chapter 11—which, especially for unsecured bondholders, could be even worse.
Sort of like choosing between an AMC Pacer and an AMC Gremlin. And even though American Motor Corporation was bought by Chrysler not GM, I think you get my drift.
11 Comments
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Posted by: pia b | January 26, 2012 5:45 AM
To compete with them, GM needs to extract more concessions from its labor unions during contract negotiations this September. But United Auto Workers President Bob King has declared that workers have already sacrificed enough to keep GM solvent and now expect givebacks. lose weight in 2 weeks
Posted by: maira s | January 20, 2012 7:26 AM
Industrial empires melt like sand castles under the reigning authority of waves. Under these circumstances, I`m just pending. I don`t really know what to expect really from the auto industry and the next decisions concerning world renowned vehicle producers. You can see for yourself how many adherent taxes and fees come along with purchasing a car. Luckily I am out of the woods to it, sort of speaking, because I was inspired enough to make my own purchase with Chevrolet Harrisburg PA area representatives and I pretty satisfied with my choice.
Posted by: darcy s | January 18, 2012 9:30 AM
It is my view that the current price of the bonds reflects that bondholders may get nothing at all in a bankruptcy court but I think that the deal offered by the government is the very least that they could expect to get from a decent judge in court whilst they may get a lot more. chiropractors in wichita
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Posted by: Michale s | December 20, 2011 4:14 AM
The General Motors Chapter 11 sale of the assets of automobile manufacturer General Motors and some of its subsidiaries was implemented through section 363 of Chapter 11, Title 11, United States Code in the United States Bankruptcy Court for the Southern District of New York.nutritional supplements
Posted by: karol b | November 24, 2011 8:16 PM
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Posted by: john j | November 23, 2011 12:16 AM
Even on the verge of recession, I can`t imagine that Americans want to put limitations on campaign giving. And when I say this, I particularly refer to personal or community initiative, automobile donation, awareness and charity actions, not to official resolutions about donating campaigns. You know, somehow it feels good to still detect some humanitarian spirit around you. These actions always show our kind and gentle side. With all the given circumstances and everything, I mean look at GM`s few liquidity and high debts, people out there still continue to show their humanitarian side.
Posted by: eva g | November 20, 2011 1:39 PM
The bail out for the car industry was so good. It worked out so good and they made it. They had to be bailed and they did it. It was so important for the economy. Pressure Sensor
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