- The Washington Times - Sunday, May 31, 2009

The last major obstacle to a speedy dip into bankruptcy by General Motors fell Sunday as investors holding 54 percent of the company’s $27 billion in debt approved the White House’s reorganization plan.

GM is expected to file for a sweeping restructuring in a Manhattan bankruptcy court on Monday morning that would leave it a smaller, leaner company. With the approval of nearly 1,000 major bondholders, including mutual funds like Pimco, Franklin and Fidelity, the plan is likely to be viewed favorably by the court, which has largely agreed to a similar bankruptcy plan offered by Chrysler a month ago.

Responding under a Saturday deadline laid down by GM and the White House, the major bondholders agreed to a sweetened offer to forgive the debt in exchange for a stake of up to 25 percent in the newly reorganized GM, according to a spokesman for the bondholders.

Thousands of smaller investors holding GM bonds did not accept the offer, however, and have said they will fight the plan in court. By some estimates, the bondholders would still receive less than 10 cents on the dollar under the plan.

The investors who approved the sweetened offer include an ad hoc committee of major bondholders owning 20 percent of the company’s debt, plus 15 percent who approved an earlier offer of only a 10 percent stake in the company. An additional 19 percent of investors indicated their support for the plan before Saturday’s deadline, the investor spokesman said. In all, 975 institutions signed on to the White House plan.

Investors who approved the plan cited the sacrifice the U.S. government made to give them a greater share of the company. While the Treasury Department would still own about 72.5 percent of the company under the plan, it could not gain repayment of the nearly $70 billion in cash and loans it is expected to provide GM unless the company’s stock price hit unprecedented levels.

“The willingness of the Treasury to face the likelihood of eating a major loss down the line to get this deal done … only partly eases the pain for bondholders,” said Glenn Reynolds, analyst with CreditSights, an investor research group.

Still, “the deal at least now offers a realistic chance of at least a small slice of upside that did not exist in the original, obscenely uneconomic deal” offered by the White House’s auto task force, he said.

In addition to the “taxpayer falling on the auto task force’s sword,” he said the company’s stock will have to “dramatically rebound” for bondholders to enjoy a “meaningful recovery” of their money.

Mr. Reynolds said Congress is likely to delve into whether the White House should have “served up the bondholder and the taxpayer” so that the United Auto Workers could receive a disproportionate share in the company. The union’s retiree health care trust fund is receiving up to a 20 percent share in the new GM to extinguish about $10 billion of debt under the reorganization plan.