February 12, 2009

GM bondholders could push too far

General Motors Corp. bondholders are demanding a return on bonds that may drive GM into bankruptcy, sources said.

GM is negotiating to secure a debt exchange to reduce its unsecured debt to $9.2 billion, The Detroit News reported Thursday. However, bondholders are seeking 50 cents on the dollar while the company's goal is 30 cents on the dollar.

GM is asking bondholders to forgive billions in debt. But the bondholders say they will sacrifice only an amount equal to concessions given by the United Auto Workers, the sources said.

By drawing a line in the sand, bondholders are banking on the U.S. government loaning GM more rescue cash. The $9.4 billion already loaned to GM comes with the stipulation that GM produce a strategy that includes stakeholder concessions by Feb. 17.

If the government judges GM's progress toward financial viability to be lacking, it could call back the $9.4 billion, forcing the automaker into bankruptcy.

Should that occur, bondholders holding unsecured company debt would be left with nothing, the News said.

GM is working diligently with all of our stakeholders, spokeswoman Renee Rashid-Merem said.