GM Bondholders Vote on Sweetened Deal
Sunday, May 31, 2009
General Motors faced its last obstacle to a quick and orderly bankruptcy yesterday, as its lenders voted on exchanging their claims for a stake in the restructured automaker.
Under orders from the Treasury Department, the company offered bondholders a 10 percent stake in the new GM, and has added to the offer warrants for another 15 percent stake. In voting to accept the proposal, bondholders would also agree not to oppose GM should it pursue a sale under Section 363 of the bankruptcy code, which allows the automaker to sell its assets and create a new company.
The number of bondholders who agreed to the exchange was unknown as of the 5 p.m. deadline yesterday for voting. But an unofficial group of bondholders, who hold about 20 percent of GM's debt, accepted the terms, saying the deal allowed them to recover more of their original investment than they could otherwise.
"In terms of the bankruptcy process, we expect the likely bondholder assent to smooth the process," Brian A. Johnson, a Barclays Capital analyst, said in a note.
GM is now speeding toward its day of reckoning, as the automaker will likely file for bankruptcy protection tomorrow.
Last week, lenders rejected a previous offer to drop claims in exchange for a 10 percent stake in the company. GM had asked at least 90 percent of the lenders to agree.
Administration officials were confident many of the bondholders would accept the sweetened deal, especially after the informal committee of lenders had agreed to it. "This new offer we believe has a greater chance of success," an administration official said.
Small individual bondholders, who represent a fifth of the $27.2 billion in unsecured debt, were shut out from voting on the offer.
The "Main Street Bondholders," representing some of those individuals, said the deal unfairly gave the United Auto Workers' retiree health-care trust fund 66 cents on the dollar, while offering bondholders 13 cents on the dollar, assuming the new GM is worth $25 billion. This group of bondholders vowed to fight back using a section of the bankruptcy code, which could give them their own standing.