GM Offers 10% Stake for $27 Billion Debt

123jump.com Staff
27 Apr, 2009
New York City

General Motors offered 10% equity stake in the company to bond holders in exchange of $27 billion debt. Most bond holders are likely to holdout for a better deal and are likely to seek majority control of the company. The restructuring calls current shareholders diluting to 1%.

[R]2:40PM New York – General Motors offered 10% equity stake in the company to bond holders in exchange of $27 billion debt. Most bond holders are likely to holdout for a better deal.[/R]

General Motors ((GM)) in a regulatory filing with the SEC offered bond holders 225 common shares of GM in exchange of $1,000 of debt and the payment of accrued interest for the year.

The exchange offer is a part of the restructuring plan that GM hopes to complete before the June 1. The U.S. Congress has required the troubled auto maker to reduce its debt, lower its payment to retiree healthcare expenses and lower its operating costs by shuttering plants and cutting labor costs.

The exchange offer of $27 billion for 10% equity stake in the company may come short of what most debt holders are expecting. The debt does not offer any cash or reduced debt or at a lower interest rate but only common equity in the company that is bleeding money and operates in an industry that is plagued with overcapacity.

The Congress mandated broad restructuring plan calls for cutting in half from $20.4 billion to the retiree medical trust that is known as Voluntary Employee Beneficiary Association.

The debt offer filing registration with the SEC lists two notes totaling 2.5 billion euros, two notes totaling 600 million pounds and 23 bonds and convertible notes offering in the U.S. dollar for the rest of $27 billion of debt.

The proposed offer is conditional on the U.S. Treasury agreeing to exchange half of its debt for 50% equity stake in the company and union accepting 39% stake in the company for its lower contribution in the medical costs and 10% to bond holders. Shareholders will hold 1% in the company after the proposed restructuring.

For the deal to consummate with bond holders, 90% must agree to the exchange offer before June 1.

General Motors ((GM)) rose 36 cents to $2.05 after surging as high as $2.27 in the morning trading.

The prospects of General Motors seeking restructuring in the bankruptcy court are likely to jump sharply if bond holders hold out for better deal. Bondholders committee that includes 120 institutions is seeking a majority stake in the company for the exchange of debt.