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Definitely an incentive to buy GM made vehicles over the imports - since "we" will own the company....
GM bankruptcy still likely despite deal
Major bondholders have agreed to a new offer that gives them am increased stake in GM if they agree to not fight plans for a quick bankruptcy turnaround.
By Chris Isidore, CNNMoney.com senior writer
Last Updated: May 28, 2009: 1:52 PM ET
NEW YORK (CNNMoney.com) -- The Treasury Department and a committee of major bondholders at General Motors have reached a deal that could give creditors a larger stake in GM than previously offered. But bankruptcy is still likely in the next few days despite the deal.
The agreement, revealed in a Securities and Exchange Commission filing by GM (GM, Fortune 500) early Thursday, would essentially give the bondholders 10% of the company but also give them the rights to buy an additional 15% of the company's stock at a low price.
The deal is unlikely to allow GM to avoid bankruptcy, however. If anything, it might clear potential obstacles to the government's plans to use bankruptcy as a way to turn around the nation's largest automaker. That's because bondholders accepting the new offer agreed not to fight the government's plans for a quick bankruptcy at GM.
As part of such a filing, GM would emerge with only its more profitable plants, brands, dealerships and contracts. GM's unprofitable plants, contracts and other liabilities that the company can no longer afford would be left behind in bankruptcy court.
According to Thursday's filing, the new offer is structured so that the assets of GM that would remain in bankruptcy would receive a 10% stake in a "new GM" that would be used to pay bondholders. The old GM would also receive the right to buy the 15% stake in the new company that emerges from bankruptcy.
The bondholders would likely receive the overwhelming majority of the old company's assets, including the shares in the new company, as part of the bankruptcy process.
In the original offer to bondholders, creditors would only receive a 10% stake in a new GM.
The filing also disclosed that GM will not repay the loans it has already received from the government or much of the additional federal aid it will get as part of the bankruptcy.
The government has already given GM $19.4 billion to fund operations and cover losses this year, and total help is expected to exceed $50 billion.
GM will pay back $8 billion of that sum. The government will also receive $2.5 billion in preferred shares of GM that pay a dividend and are more similar to a loan than stock.
But more than $40 billion of federal help to GM will be converted into a 72.5% stake in the new company. This means that for taxpayers to make back any of the money loaned to GM, it will have to be because shares of the new GM increase dramatically in value following an exit from bankruptcy.
A senior administration official conceded Thursday that while the Treasury Department hopes the new GM will be financially viable even if auto sales remain weak, it will be difficult for taxpayers to recover its full investment in GM.
"I don't know how much we're going to recover," he said.
A trust fund run by the United Auto Workers union would also have a 17.5% stake in the new GM, as well as the right to buy an additional 2.5% stake. UAW President Ron Gettelfinger said earlier this month the company hopes to sell its stake in GM as soon as possible.
But the administration official said that it is unlikely GM's stock will be publicly traded while the company is in bankruptcy. Even though the "new GM" could emerge from bankruptcy in two to three months, the process for the assets remaining in bankruptcy could last between 6 and 18 months.
That will make it difficult for the government and the union trust fund to to quickly sell their shares in GM.
http://money.cnn.com/2009/05/28/news/companies/gm_bondholders/index.htm?postversion=2009052810