GM bondholders face 'lopsided' deal-CreditSights

NEW YORK May 27 (Reuters) - General Motors Corp's (GM.N) bondholders face a "lopsided, outrageously unbalanced deal" relative to the United Auto Workers' (UAW) claims in their rejected bond swap, CreditSights said on Wednesday.

GM said in a statement Wednesday that an offer to exchange $27 billion in bond debt for a 10 percent stake in a reorganized company had fallen far short of its debt reduction target set in consultation with the Obama administration.

GM wanted to reduce 90 percent, or $24 billion, of its bondholder debt through the exchange, but the offer failed to gain enough support from institutional investors, who dismissed it as an unfairly low payout.

"Casting a lopsided, outrageously unbalanced deal as a major concession is still more of the same Jedi Mind Tricks even if the tricks are aimed more at public perception than the bondholders," CreditSights said in a research note. "For most bondholders, this is a fight worth having."

CreditSights also said news leaks on details of the negotiations between the U.S. Treasury, the government's auto task force, bondholders, the UAW and GM could be part of "an orchestrated attempt" to cast the talks in a positive light.

CreditSights said "the destruction of the bondholders' claims as the end game" has always been a goal.

"The terms are as egregiously unfair and lopsided now as they were before with the risk-reward symmetry still very much skewed against the largest pre-bankruptcy creditor."

The union has agreed to take 17.5 percent of common stock in a restructured GM. The union would also be paid $6.5 billion in preferred stock and would be granted a $2.5 billion note.

The union also would have a warrant for another 2.5 percent of stock in a new GM that would be majority held by the U.S. government.

The offer to the UAW "dwarfs the consideration being offered to GM bondholders for sacrificing almost $27 billion in unsecured debt," CreditSights said. (Reporting by Walden Siew; editing by Jeffrey Benkoe)