Remember when GM said bankruptcy was impossible because they would lose jobs and it would cost them their reputation? It’s good thing they went with a government bailout… so they could be dragged through the mud for months, have their CEO fired, layoff 21,000 workers, and give half the company to the government.
How is partial nationalization a good choice? It changes little, expect giving Washington explicit instead of tacit control, while wiping out debt holders. With this, Megan McArdle writes that GM is making the moral equivalent of a hail mary pass.
And it’s a pass that looks like it might fall flat. Last night an ad hoc committee of GM bondholders released a statement saying in part:
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 current offer is neither reasonable nor adequate. Both the union and the bondholders hold unsecured claims against GM. However, the union’s VEBA would receive a 50 percent recovery in cash and a 39 percent stake in a new GM for its $20 billion in obligations; while bondholders, who own more than $27 billion in GM bonds and have the same legal rights as the unions, would only receive a mere 10 percent of the restructured company and essentially no cash.
The offer was made unilaterally, without any prior discussion or negotiation with bondholders and in spite of repeated calls for dialogue.
And why should the backers of GM accept this pittance? They can get more in bankruptcy court, where this should have been all along. Unless the government uses its leverage as the bailouter of some of these debt holders to push them into accepting the deal, it is looking like GM might need a Flutie-like miracle to survive.
Meanwhile, consider the sweetheart deal Fiat is getting from the government for Chrysler.