* Low-single-digit percentage of $27 bln debt tendered
* Bonds tendered came largely from retail investors
* Most bondholders expect GM to file for bankruptcy
(Adds background, bondholder quotes, GM comment, stock and bond
By Jui Chakravorty Das
NEW YORK, May 26 General Motors Corp's (GM.N)
offer to exchange shares in the reorganized company for $27
billion in bond debt has met with a tepid response from investors,
two sources familiar with the process said on Tuesday.
GM bondholders have only tendered a low-single digit
percentage of the total debt available, the people said,
requesting anonymity because details of the exchange are not
Both sources said the few tenders had come largely from retail
investors, who hold about $6 billion of the debt.
GM has said it could have to file for bankruptcy if it cannot
retire 90 percent -- or $24 billion -- of its bond debt in the
exchange offer that expires just before midnight.
The largest U.S. automaker had no comment on the bond
exchange, saying it would disclose the results on Wednesday
"The bondholders are not interested at all," one of the
sources said. "They'd rather fight it out in bankruptcy court than
do anything at this point."
GM, which has lost $82 billion in the past four years and has
received $19.4 billion in government funding since the beginning
of this year, has been struggling to cut costs and reduce debt to
continue to receive more government aid.
The company said on Friday that it expected to need another
$7.6 billion from the U.S Treasury after June 1.
Last week GM reached a deal with the United Auto Workers to
cut labor costs and accept new terms for a $20 billion union
retiree healthcare obligation.
Under the current plan, a UAW trust fund for healthcare would
receive a GM stake of about 39 percent. The U.S. Treasury would
hold a 50 percent stake, while bondholders would get 10 percent.
Most institutional bondholders have balked at the terms of the
offer; they had sought a majority stake of 58 percent.
"The participation (in the bond exchange) is very small," one
of the sources said. "Everyone realizes this is going to
Most of the bondholders expect GM to file for bankruptcy some
time between the expiration of the tender offer and before June 1,
the sources said.
GM has said it is unlikely to make a $1 billion debt payment
due June 1, a day after its government-imposed deadline to cut
enough costs or face bankruptcy.
The failure of GM's effort to win support from bondholders for
its effort to restructure outside bankruptcy had been anticipated
GM shares were up 23.8 percent at $1.77 in afternoon New York
Stock Exchange trading after falling as much as 22 percent earlier
in the session.
The company's 8.375 percent bonds due in 2033 rose to 5 cents
on the dollar in morning trade, up from 4.75 cents on Friday,
according to MarketAxess.
BONDHOLDERS CRY FOUL
Representatives of GM bondholders, like the secured debt
holders in the Chrysler bankruptcy, have argued that the Obama
administration's autos task force is rewriting the rules of
corporate reorganization on the fly, in a way that favors the
union over other creditors.
The UAW is owed about $20 billion more from GM to fund the
healthcare trust, known as the Voluntary Employee Beneficiary
Association. GM had asked the union to accept equity in exchange
for half of that obligation.
Bondholders have complained that the union, which was offered
39 percent of a new GM, was getting an unfairly rich payout
compared with other unsecured creditors.
"It's a slap in the face," said James Yarbrough, a retired
accountant from Plano, Texas, referring to the 10 percent equity
Yarbrough, who said the Obama administration was favoring the
union over investors, has invested $158,000 in GM bonds, which he
first bought in 1994. He regrets buying more bonds in 2008, when
he thought GM was about to make a turnaround.
"This will probably force me to sell my house," Yarbrough
said. "I'm going to fight until the end."
(Additional reporting by Walden Siew and Dena Aubin; Editing by
Lisa Von Ahn)