General Motors bondholders called the companys debt-for-equity swap offer today neither reasonable nor adequate and a blatant disregard of fairness.
The automaker proposed a swap in which 225 shares of the company would be exchanged for every $1,000 in bondholder debt.
Bondholders would eventually own 10% of the stock in the reorganized company, while the federal government would have an equity stake of at least 50%. The UAW would own as much as 39%, and existing shareholders would get 1 percent.
The offer was made unilaterally, without any prior discussion or negotiation with bondholders and in spite of repeated calls for dialogue, advisers to the ad hoc committee of GM bondholders said in a statement. We are deeply concerned that GM waited until late April to make its offer.
GM has until the end of next month to fashion a new business plan acceptable to the Obama administration or face possibly bankruptcy proceedings in court. It is working with bondholders and the union in an attempt to do so.
The statement called the GM offer posturing and said the company would rather discount the thousands of individual investors and retirees who own GM bonds than undergo earnest negotiations.
Individuals own $6 billion of the more than $27 billion in GM bonds held by lenders, the statement said.
The car company said today it will cut 21,000 U.S. factory jobs by next year, phase out its Pontiac brand and ask the government to take stock in exchange for half of GMs debt to the government.
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, the bondholders said.
The ad hoc committee represents about 100 institutions that own about $12 billion in unsecured bonds. Other institutions not represented by the group, including Pacific Investment Management Co., own about $9 billion.