GM debt remains hurdle
DETROIT — General Motors reached a deal Thursday with its union on concessions and is now racing the clock to persuade its bondholders to eliminate $27 billion in debt and avoid a bankruptcy filing.
GM has until Tuesday to persuade thousands of bondholders to agree to swap their debt for equity, which would fulfill its last significant requirement for restructuring ordered by President Barack Obama.
But there appears to be little chance that the required 90 percent of bondholders will agree to its terms, making the prospect of bankruptcy increasingly likely for GM, the nation’s largest automaker.
Analysts said the United Auto Workers’ deal with GM, which followed similar concessions to Chrysler, will increase pressure on bondholders to accept the company’s offer.
"I think there’s a shot it will succeed, but a very small one," said David Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich.
A coalition of small bondholders protested the terms of GM’s offer in Washington on Thursday. Larger, institutional bondholders have also opposed the deal, which calls for them to receive 225 shares of GM stock in exchange for each $1,000 worth of debt.
A GM spokesman, Greg Martin, said the company has made no decision on whether to extend the exchange offer beyond the Tuesday deadline.
GM, subsisting on $15.4 billion in government loans, has until June 1 to meet the broad criteria for restructuring spelled out by a special presidential auto task force.
Under a plan announced in April, the Treasury Department would control at least 50 percent of the stock in a restructured GM. A health care trust for union retirees would have about 39 percent, with bondholders getting 10 percent and current shareholders the remaining 1 percent.
Advisers to a committee of GM’s biggest bondholders, representing about 20 percent of the $27 billion in bond debt, have repeatedly criticized the plan. They have also accused the government of seeking to use them as scapegoats for a potential bankruptcy filing. Under their own proposal, GM bondholders would own 58 percent of the reorganized carmaker. These advisers have said they are willing to negotiate with the company and the government but have made no headway thus far individual health insurance quote.
As for the UAW, details of its agreement with GM are being withheld pending a ratification vote by 61,000 U.S. union workers, expected to take place next week. But the deal does include financing the retiree trust. People close to the talks said the union agreed to allow GM to finance half of its future retiree health care costs — estimated at $20 billion — with stock.
The UAW’s president, Ron Gettelfinger, had been critical of GM’s plans to cut an additional 21,000 union jobs, as well as increase its imports of vehicles made in China, South Korea and Mexico. Whether those job cuts are addressed in the agreement is unclear.
"The union has worked very well to create the right optics and to be in sync with the message the White House has put out there," said John Casesa, a principal in the automotive consulting firm Casesa Shapiro Group.
The UAW’s deal with GM follows a similar health care agreement it reached with Chrysler, which is also surviving off government loans. Despite the agreement, Chrysler was forced to file for bankruptcy after it failed to persuade a group of banks and hedge funds to agree to take cash payments to retire $6.9 billion in debt.
GM’s president, Fritz Henderson, has said repeatedly that bankruptcy is a "probable" outcome because of the difficulty in persuading 90 percent of the bondholders to agree to its restructuring terms.
In the event of a bankruptcy filing, the bondholders may be offered less attractive terms in exchange for their debt.
"The financial community and the union trust have been in competition for this stock," Cole of the Center for Automotive Research said.
"But with the union deal settled, the pressure is only going to increase on the bondholders."
GM employs more than 1,700 workers at its Wentzville plant, the GMC Savana and Chevy Express full-size vans are made.