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Speeding up the process

posted by Stephen Lubben

GM now has a committee of 20% of its bondholders supporting a plan to give the bondholders 25% of reorganized GM.  The unanswered question is what the marginal difference in value is between 10% (previously offered) and 25%.  From GM's perspective this obviously helps take one of the more organized groups of dissenters out of the picture.  Also unanswered in the Times' story is if the bondholders will have to share their new gains with the dealers whose contracts are rejected by GM.

UPDATE:  The Times originally reported that the bondholder group would receive 25% of new GM in exchange for not objecting to the 363 sale.  Turns out that additional 15% is in the form of warrants, rather than straight shares, which kind of suggests an answer to my marginal value question above. Also, as I read the GM 8-K, this new deal will not go into effect unless more bondholders come on board. If the deal does not go into effect, there is also a threat that the return to bondholders will be reduced, which is in line with my post yesterday.

Finally, the 8-K makes clear that GM intends to follow Chrysler path through chapter 11.

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Regardless of any other differences, this won't require 90% buy-in. It's also a stake in a post-bankruptcy company; if the bankruptcy is more effective than pre-bankruptcy negotiations at eliminating "legacy costs" of various kinds, then any stake in the post-bankruptcy company is worth more than the same sized stake in the previous talks would have been.

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