Egan Jones calling it like it is:
Defacto default – bondholders are offered just 10% of the Co.’s equity in exchange for their $27B in debt while the gov’t and VEBA will receive 89% of the equity. Bond holders will receive accrued interest in cash for tendered debt. The offer is contingent upon agreements being reached with the UAW and VEBA and a 90% tender rate. GM has announced that it will not pay its $1B in interest payments due June 1st. GM has received $15.4B from the gov’t and could get another $5B shortly. While GM has developed a plan for auto sales closer to 10.5M units per year, were not convinced that’s low enough given the current 9M unit sales and the likelihood of a much smaller Co. after restructuring.
It is odd that the administration is set on continuing its course of antagonizing creditors at the expense of bloated pension plans and workers. While Zero Hedge does not have any particular insight, bondholders are likely not going to be too happy to get the shaft, especially after the UAW (at least optically) receives yet another sweetheart deal, and, as always, bondholders have not been consulted on this development. A 90% tender acceptance ratio is likely a pipe dream but at least Obama can tell his Detroit and rust belt voters he did what he could, and it was Wall Street yet again that derailed the plan and was responsible for the massive job losses about to ensue. Scapegoat the creditors: nothing but politics.
It is frightening that Obama et al are set on perpetuating the divergence of Wall Street vs Main Street. As this split reaches a crescendo, and the hatred by the majority toward the minority spikes, keep your eyes peeled for many more amusing disclosures, hearing and hand spankings out of Barney Frank and the insane clown posse.
Update: an observant reader brings up the Bill Gross holdout clause in the S-4:
“GM believes that at least 90% of the outstanding notes….will be needed to be tendered…in order to satisfy the US Treasury condition…Whether this level of participation…will ultimately be required to satisfy the US Treasury condition will ultimately be determined by the US Treasury”
Let the taxpayer funded bailout of the UAW continue.
Originally published at the Zero Hedge blog and reproduced here with the author’s permission.