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Bondholders call GM's offer unreasonable and inadequate

April 27, 2009 |  3:49 pm

The official response from General Motors Corp.'s ad hoc bondholders committee to the company's latest debt-for-equity exchange offer: Please tell us you're kidding.

As noted in this earlier post, the bondholders were certain to be incensed by GM's offer of just a 10% equity stake in a restructured company for their $27 billion in debt, while Uncle Sam would get a majority stake and the United Auto Workers benefits fund would get up to 39%.

The bondholders' committee followed the script, calling the offer "neither reasonable nor adequate." From its statement today:

"We are deeply concerned with today’s decision by GM and the auto task force to offer only a small, inequitable percentage of stock to its bondholders in exchange for their bonds.

GMlogo "We believe the offer to be a blatant disregard of fairness for the bondholders who have funded this company and amounts to using taxpayer money to show political favoritism of one creditor over another.

"Today’s posturing makes it clear that the company and the auto task force would rather discount the thousands of individual investors and retirees who own GM bonds than undergo earnest negotiations."

The committee, however, is made up of big institutional investors, not Ma and Pa bond owners. And despite the investors' anger over what they believe is a raw deal, it isn't clear whether they'll vote it down -- because the alternative would be a reorganization in Bankruptcy Court, where bondholders could fare even worse.

But the exchange would need the approval of owners of at least 90% of GM's outstanding bonds, GM said today. That could be far too high a hurdle.

From the committee's statement:

"We are deeply concerned that GM waited until late April to make its offer. GM CEO Fritz Henderson even admitted that getting 90% of the company’s bondholders to agree to a debt exchange within a month would be 'a tough task,' given the company’s large amount of retail investors, who hold some $6 billion in bonds.

"This offer demonstrates that the company and the auto task force, unfortunately, are pinning their hopes on an extremely risky and legally questionable turnaround in bankruptcy court, instead of engaging its lenders and workers in the very type of negotiations that could avoid such a fate."

-- Tom Petruno