- The Washington Times - Friday, May 1, 2009

NEW YORK | General Motors Corp. bondholders want a majority stake in the restructured automaker in exchange for forgiving their claim to $27 billion of GM debt, a committee representing the bondholders said Thursday.

The bondholders’ counterproposal follows a much less generous offer from GM on Monday. GM is working furiously to reorganize and shrink its teetering debt load before a government-imposed restructuring deadline a month away.

The committee said under its proposal GM’s bondholders would take a 58 percent stake in a reorganized automaker. That would leave a union-run health care trust with a 41 percent stake and current equity holders with 1 percent.

The proposal leaves the U.S. government without an equity stake in the new GM and saves taxpayers $10 billion, the bondholders said. They said it is fairer than GM’s proposal because it allocates equity to the United Auto Workers union and to the bondholders based on how much money they are owed.

The counterproposal comes in response to GM’s offer earlier this week to give its bondholders 225 shares for every $1,000 held in bonds. Bondholders have criticized the plan, saying it would leave them with just pennies on the dollar for their 10 percent equity stake.

The U.S. government, under GM’s plan, would get a 50 percent equity stake in exchange for about $10 billion in loan forgiveness. The UAW, for its part, would get a 39 percent stake in exchange for $10 billion in payments to its health care trust in stock.

“Unlike the current proposal, our plan does not grant a controlling interest in GM to the federal government,” said Eric Siegert, a financial adviser to the bondholder committee. “We do not believe that nationalizing one of America’s largest and most important companies is the right policy decision for our country.”

GM spokesman Tom Wilkinson said that GM has already launched its “debt-for-equity” exchange and is proceeding with its previous offer.

GM must bring 90 percent of bondholders on board with the plan for it to work, the company said.

Getting its bondholders to agree to a debt-for-equity exchange is a key component of its restructuring plan. GM is racing to restructure by a government-imposed deadline at the end of May, at which point it would be eligible for additional federal aid.

Stephen Lubben, a professor at Seton Hall Law School who specializes in corporate finance, said GM would have a very hard time succeeding with the debt-for-equity swap.

“They’re never going to get 90 percent,” Mr. Lubben said. “They’ve got so many retail holders of that bond debt. You could easily have 10 percent not respond to the tender offer.”

On Wednesday, a group of GM bondholders held a news conference in Warren, Mich., demanding a better deal. They said holding stock in a restructured GM doesn’t compare to the bond interest payments they rely on, and said they cannot afford to lose the principal they lent.

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