Will They?
…or won’t they?
Will the GM bondholders swap for stock?
GM said it would offer 225 shares of common stock for each $1,000 of debt. If not enough debt holders agree to the plan before June 1, GM said it would file for bankruptcy.
Calculated Risk says the bondholders aren’t thrilled:
This morning GM offered to exchange equity in the restructured company for the outstanding $27 billion in debt. The bondholders responded negatively …
Statement from ad hoc committee of GM bondholders via WSJ:
… The current offer is neither reasonable nor adequate. Both the union and the bondholders hold unsecured claims against GM. However, the union’s VEBA would receive a 50 percent recovery in cash and a 39 percent stake in a new GM for its $20 billion in obligations; while bondholders, who own more than $27 billion in GM bonds and have the same legal rights as the unions, would only receive a mere 10 percent of the restructured company and essentially no cash.
The offer was made unilaterally, without any prior discussion or negotiation with bondholders and in spite of repeated calls for dialogue.
…
This offer demonstrates that the company and the auto task force, unfortunately, are pinning their hopes on an extremely risky and legally questionable turnaround in bankruptcy court, instead of engaging its lenders and workers in the very type of negotiations that could avoid such a fate.Apparently the bondholders are preparing a counteroffer.
A GM bankruptcy is still not out of the question.
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If GM goes bankrupt, what happens to shareholders stock? Or is that just anyones guess? My neighbor bought a small truckload of GM stock against my raised eyebrows. He was confident that the government would not let them go bankrupt. I haven’t brought it up with him in several months, as I didn’t want to embarrass him. I think he got in around 4. Heck, I cant talk, I was considering buying a sizable chunk of Citgroup just a few weeks ago. However, that urge has passed. Im now adding to my short positions.
Comment by Randal — 4/27/2009 @ 8:58 pm
I believe that in a typical reorganization bankruptcy, existing shares cease trading and become worthless. Then when the company comes out of bankruptcy, new stock may be issued, probably under a new symbol. Take United Airlines for instance — old stock UAL went bye-bye, new stock trades under symbol UAUA.
Buying stock in these companies is like rolling the dice, IMO.
Comment by BMB — 4/27/2009 @ 9:08 pm