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UPDATE 2-GM bond exchange falling far short of target-sources
May 26, 2009 / 4:41 PM / 8 years ago

UPDATE 2-GM bond exchange falling far short of target-sources

* 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 activity)

By Jui Chakravorty Das

NEW YORK, May 26 (Reuters) - 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 public.

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 morning.

“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 bankruptcy court.”

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 by analysts.

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.


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 stake offer.

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)

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