- The Washington Times - Thursday, May 28, 2009


General Motors made a new offer of additional stock to holders of its $27 billion in bonds Thursday morning and some of the largest bondholders owning about a fifth of the debt said they had accepted the deal.

The offer would substantially increase the investors’ equity share in a newly reorganized GM by providing them with warrants to acquire another 15 percent of equity in the company on top of the 10 percent share GM previously offered, if they support a quick restructuring and sale of the company in an expedited bankruptcy.

The offer shows that GM and the Treasury are using the same divide-and-conquer strategy that Treasury used with Chrysler’s lenders to create a split between investors who are ready to work with the government and those who want to fight the forced settlement in the courts. The Chrysler strategy has been successful in minimizing and sweeping away opposition to the bankruptcy reorganization in the courts.

GM is giving its bondholders until 5 pm on Saturday to indicate whether they support the sweetened offer. If they reject the offer, GM said it would be substantially reduced or eliminated after the deadline.

A committee representing major institutional bondholders said they supported the revised offer as providing “the opportunity to recover a greater portion of their original investment” while avoiding potentially costly and lengthy litigation in bankruptcy court.

“It represents the best alternative for bondholders in the current difficult and dire situation,” the Ad Hoc Committee for GM Bondholders said.

A Main Street bondholders group representing many small bondholders had not given its consent, however.

A senior administration official said the committee of major bondholders is working aggressively to try to get the rest of the bondholders to sign on to the new offer. The official seemed confident that the new offer would be attractive to the remaining investors and would succeed at winning support for the White House’s reorganization of GM.

By accepting the offer, the bondholders would clear the last obstacle to a sweeping reorganization of GM in a fast-track bankruptcy that would end up with the U.S. government purchasing the most profitable divisions of the company and owning a whopping 72.5 percent share of GM. The United Autoworkers Union would own 17.5 percent of the company, with warrants to acquire another 2.5 percent under the plan.

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