General Motors (GM) said Wednesday that not enough bondholders agreed to an exchange offer, which expired at midnight Tuesday, to make the deal go through. GM’s board of directors will meet shortly to discuss the next step.
The automaker was attempting to persuade bondholders to trade in $27.2 billion in unsecured public debt notes in exchange for a 10% stake in the restructured automaker. GM needed 90% of bondholders to agree to the plan. On Wednesday, the automaker said the amount of notes turned in were “substantially less than the amount required by GM to satisfy the debt reduction requirement” set forth by the U.S. Treasury.
The bondholders do have incentive.
From The Financial Times:
Hedge funds and other investors stand to make billions of dollars on credit insurance contracts if GM declares bankruptcy, a prospect that is complicating efforts to persuade creditors to agree to a restructuring plan for the automaker, analysts say.
Holders of $27bn in GM bonds have until June 1 to decide whether to swap their debt for a 10 per cent equity stake in the company as part of an offer that would give the US government 50 per cent of the shares, a United Auto Workers union healthcare fund 39 per cent and existing shareholders 1 per cent.
However, analysts say the chances the proposal will be accepted have been diminished by the large number of credit default swap (CDS) contracts written on GM’s debt.
Holders of such swaps would be paid in the event of a default – but would lose money if they agreed to restructure GM’s debt. For investors who own bonds and CDS, this could create an incentive to favour a bankruptcy filing.
Good for them. Now they need to hire security guards in preparation for the busloads of union thugs and Acorn members that may showup at their homes.
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Tags: Bondholders, General Motors, GM
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