REPORT: GM creditors want majority stake in exchange for debt

[Intrepidation]

Apparently, the banks and funds that own most of General Motors' outstanding bonds were not too thrilled with the idea of writing down $27 billion in loans for a mere 10% stake in the restructured company. In response to GM's proposal to swap debt for stock, a committee of bondholders has made a counter offer.

The original GM offer would have given 89% of the automaker to the UAW and the federal government. The counter proposal would shut the government out of the stock swap deal entirely. Instead, creditors and the union would get stakes of 58% and 41% respectively with current stockholders receiving the remaining 1%. The money that the government loaned GM would remain as debt to be paid back at some future date.

The idea is that the government would be better off collecting the interest and not having an obligation to fund the VEBA. Whether this will actually reduce the need for additional government loans going forward as claimed by Eric Siegert, senior managing director of Houlihan Lokey Howard and Zukin and financial advisor to the bondholder committee, is debatable. Either way, nothing is likely to happen today anyway as all focus is now on Chrysler.

Autoblog

[CaddyXLR-V]

It only makes sense the banks should get the biggest stake. They put up the most money. Why would the govt get 50% of the company, while only putting up 1/3 the money the banks have, while giving the banks only 10%?

[vonVeezelsnider]

Better them than the UAW and the Fed.

[toesuf94]

Better them than the UAW and the Fed.

+ 100000000

[Teh Ricer Civic!]

Hmm i would be somewhat concerned with the Creditors wanting to dissolve and liquidate GM if they do not function well enough... HOWEVER... there will be a lot of competing interests in this so it may work out.

I am in far more support of this than .gov taking control.

[G. David Felt]

I like this Idea even better.

[Drew Dowdell]

Are you guys out of your flipping minds?!

1. The banks will liquidate GM as fast as they can. Is there a group of people in this country who actually care less about the domestic auto industry than the bankers?

2. The government is going to end up having to fund the VEBA anyway, so don't pretend the banks are going the government a "favor" here.

3. The banks have already done a bang up job running their own businesses. I can't wait to see what they do with GM.

4. The government actually has a better track record in these areas! Conrail, the USPS.

I'm no fan of the government running GM. But if they set at it like they did with Conrail. GM will come out of it ok.

[G. David Felt]

Are you guys out of your flipping minds?!

1. The banks will liquidate GM as fast as they can. Is there a group of people in this country who actually care less about the domestic auto industry than the bankers?

2. The government is going to end up having to fund the VEBA anyway, so don't pretend the banks are going the government a "favor" here.

3. The banks have already done a bang up job running their own businesses. I can't wait to see what they do with GM.

4. The government actually has a better track record in these areas! Conrail, the USPS.

I'm no fan of the government running GM. But if they set at it like they did with Conrail. GM will come out of it ok.

You have made some very valid points. My day right now is colored as where I work has been closed down and so I am unemployed and like many here probably thought the likes of the bank and UAW as a better alternative than the gov.

But like you stated above you do have some valid points if they Gov stays focused this way.

[toesuf94]

Here is why I feel the banks and bond holders are better at holding the assets than the government: For the bond holders and the banks to retain the value of the assets, they have to maintain or increase the worth of the assets. They have a vested interest to keep GM alive. If GM dies, they are out a whole bunch of money and will probably go broke/be shuttered from the failure of GM...in other words: If GM fails, they fail too! I doubt the government will be willing to offer another bailout to the banks due to the overwhelming popularity of the first two with the voting public.

The Government really does not care if GM/Ford or Chrysler fail...they will protect the union members through buying up the pensions to some extent, but that is really it. The companies will fail and the taxpayers that gave them the loans will remain un-paid. When has any government been concerned with saving/repaying taxpayer's money?

So, the short of this: Bond holders and Banks need GM to survive if they ever want to see their money again. The Government really does not care if they see the loan money repaid or not, as it is OUR money they are loosing. Plus: Who is going to buy GM AND take over the DEBTS? I cannot think of one viable entity that has the backing to take on such a massive undertaking.

[Intrepidation]

Anyone who thinks banks, which are largely responsible for the economy mess we're in now and can't manage themselves should be in charge of a car company should have their heads examined.

Do you really think the banks will give a $h! abut GM? If they get enough power they'll hack it up and sell it to the Chinese to get their money.

[Teh Ricer Civic!]

Are you guys out of your flipping minds?!

1. The banks will liquidate GM as fast as they can. Is there a group of people in this country who actually care less about the domestic auto industry than the bankers?

Yes, there are plenty of groups. However bankers are not one of them, because a bank would rather have a continuing LARGE corporation come back to them for loans in the future. They could stand to make MORE in the future by rejuvenating GM. Additionally since the stock is worth nil, they can keep the stock on the books as a "held for investment" type fund and that will looks good on their books when GM stock appreciates. The banks would get back pennies on the dollar if they were to liquidate GM, and many of the large banks are not totally hurting for cash at the moment (although some are). As a result, it would be in their best interests to rebuild GM and later sell their stocks off for massive returns. ADDITIONALLY, these banks tend to specialize in certain industries and have a lot of experience. They can leverage the experience they have not only with GM but also other auto manufactures in order to place their people on GMs board of directors and get the company moving again.

2. The government is going to end up having to fund the VEBA anyway, so don't pretend the banks are going the government a "favor" here.

Says who? Negotiations with the union plus strong leadership can lead them from the pit of VEBA.

3. The banks have already done a bang up job running their own businesses. I can't wait to see what they do with GM.

Yes, some banks truly did a really poor job. However it is governmental influence + government chartered corporations that really did the brunt of the damage and laid out the platform for this debacle. If interest rates were left to manage themselves, we would not have ran into this bubble simply because the money supply would have dried up and interest rates would naturally have gone up! Instead we had a Federal Reserve artificially suppressing interest rates in the name of "improving the economy" for the past decade and a half.

There is no point in giving GM over to the government which cannot even run itself without going in the red!!! And the government can coerce its people into paying!

4. The government actually has a better track record in these areas! Conrail, the USPS.

Government agencies that are chartered and ran essentially privately tend to do well provided the government stays largely out of the business. Looking at some state corporations i can see large problems that erupt when the state starts to infringe upon its own semi-private corporations. The effects of government on completely private businesses is even worse.

I'm no fan of the government running GM. But if they set at it like they did with Conrail. GM will come out of it ok.

Edited May 1, 2009 by Teh Ricer Civic!

[hyperv6]

I don't expect the banks to get that much control.

I can see the goverment letting them run the companies to regain their outstanding money but the goverment would retain the right to keep GM together. The goverment need GM to remain to support the UAW and the suppliers. Other wise the will have a very pissed off donating group and more unemployed.

In the end I could see the banks get the day to day control over the company with the stiplulation form the goverment that they rebuild GM not sell them off. The banks are not in a place where they can make the call. It is either do as the goverment says or else.

But this goes on so many things could happen. Who is to say someone like VW or other MFG comes in and buys into to GM in some kind of limited deal like Fiat. I mean some crazy things can still happen.

At this point I don't think anyone could say what GM will be doing in a month from now. It is going to be a roller coaster for the Month of May.

[CaddyXLR-V]

Anyone who thinks banks, which are largely responsible for the economy mess we're in now and can't manage themselves should be in charge of a car company should have their heads examined.

Do you really think the banks will give a $h! abut GM? If they get enough power they'll hack it up and sell it to the Chinese to get their money.

This is exactly the reason the domestic automakers have a negative perception. Everyone believes whatever is popular at the time, no matter how true it is. If the media says banks are bad, everyone runs around saying how banks are bad and caused all our problems. I would rather have the banks in control, because they are actually strong enough to block some of the crazy regulations the government is going to try to pass. There are banks out there that are turning record profits in the middle of a depression, while our government is running record deficits. Tell me again, who would you rather control your business? The banks that got greediest were taken over by their competitors.

Where is Wachovia, Washington Mutual, Countrywide, Bear Stearns, Merrill Lynch, etc? They were bought up by the more responsible banks. I've worked for 2 of the top banks. They are nothing like the country portrays them to be.

[CSpec]

I understand the protests. The banks were strongarmed into TARP and now can do little to resist the government's weak proposal to them, but the other debt holders are right to cry foul here: in a bankruptcy court, they are entitled to money before the unions. However, I have heard interesting theories about making the union such a strong party. Either they respond to their new incentives to focus on the company making money instead of extracting wages, or they stay the same and run the new company into the ground. I bet on the latter.

[toesuf94]

And let us not forget who MADE the banks restructure their loan rules and got us all into the sub-prime mess that lead us all into the current mess we are in - the Government. You really want these people to run a company? They cannot even run the COUNTRY! And for those of you who wish to blame the past 8 years and bush, see below...from the New York Times , dated 9 30, 1999:

-Fa nnie Mae Eases Credit To Aid Mortgage Lending - New York Times Page 1 of 2

GSeptember 30,1999

Fannie Mae Eases Credit To Aid Mortgage Lending

By STEVEN A. HOLMES

In a move that could help increase home ownership rates among minorities and low-income consumers,

the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks

and other lenders.

The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New

York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose

credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope

to make it a nationwide program by next spring.

Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure

from the Chton Administration to exp&d mortgage loans among low and moderate.income people a d

'felt pressure from stock holders to maintain its phenomenal growth in profit$.

In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help

them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings

and savings are not good enough to qualify for conventional loans, can only get loans from fmance

companies that charge much higher interest rates -- anywhere from three to four percentage points

higher than conventional loans.

"Fannie Mae has expanded home ownership for millions of f&lies in the 1990's by reducing down

$ayrnent requirements," said F D. Raines, F a d e Mae's chairman and chief executive officer.

'Tet there remain too many borrowers whose credit is just a notch below what our underwriting has

r&&

prime market."

C

Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent

of the loans in the subprime market went to black borrowers, compared to 5 per cent of loans in the

conventional loan market.

Ln mo$ng, even tentatively, into this new-area of lendinj, Fannie Mae is taking on significantly-more

risk, which may n o o e c o n o m i ctim es. But the government-subsidized

borporation may mn mto trouble in an economic downturn. promptine 'a government rescue sirgi1a.r to

anzloan mdustry in the 1980's. Y

"From the perspective of many people, including me, this is another thrift industry growing up around

us," said Peter Wallison a resident fellow at the American Enterprise Institute. "If they fail, the

government will have to step up and bail them out the way it stepped up and bailed out the thrift

industry."

[CaddyXLR-V]

And let us not forget who MADE the banks restructure their loan rules and got us all into the sub-prime mess that lead us all into the current mess we are in - the Government. You really want these people to run a company? They cannot even run the COUNTRY! And for those of you who wish to blame the past 8 years and bush, see below...from the New York Times , dated 9 30, 1999:

-Fa nnie Mae Eases Credit To Aid Mortgage Lending - New York Times Page 1 of 2

GSeptember 30,1999

Fannie Mae Eases Credit To Aid Mortgage Lending

By STEVEN A. HOLMES

In a move that could help increase home ownership rates among minorities and low-income consumers,

the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks

and other lenders.

The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New

York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose

credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope

to make it a nationwide program by next spring.

Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure

from the Chton Administration to exp&d mortgage loans among low and moderate.income people a d

'felt pressure from stock holders to maintain its phenomenal growth in profit$.

In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help

them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings

and savings are not good enough to qualify for conventional loans, can only get loans from fmance

companies that charge much higher interest rates -- anywhere from three to four percentage points

higher than conventional loans.

"Fannie Mae has expanded home ownership for millions of f&lies in the 1990's by reducing down

$ayrnent requirements," said F D. Raines, F a d e Mae's chairman and chief executive officer.

'Tet there remain too many borrowers whose credit is just a notch below what our underwriting has

r&&

prime market."

C

Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent

of the loans in the subprime market went to black borrowers, compared to 5 per cent of loans in the

conventional loan market.

Ln mo$ng, even tentatively, into this new-area of lendinj, Fannie Mae is taking on significantly-more

risk, which may n o o e c o n o m i ctim es. But the government-subsidized

borporation may mn mto trouble in an economic downturn. promptine 'a government rescue sirgi1a.r to

anzloan mdustry in the 1980's. Y

"From the perspective of many people, including me, this is another thrift industry growing up around

us," said Peter Wallison a resident fellow at the American Enterprise Institute. "If they fail, the

government will have to step up and bail them out the way it stepped up and bailed out the thrift

industry."

If only people would search for the truth instead of just believing everything they hear. This will go ignored, and people will still be blaming the banks. The government pushing for more sub-prime loans, and loans to low income borrowers should tell you all you need to know. Fast forward to now, and where is the government placing the blame? Banks and CEOS. They are the governments scapegoats.

[gm4life]

Better them than the UAW and the Fed.

You damn right it is. Thank God maybe some common sense will finally prevail. I said SOME. I am not asking for ALOT. Just SOME.

[gm4life]

And let us not forget who MADE the banks restructure their loan rules and got us all into the sub-prime mess that lead us all into the current mess we are in - the Government. You really want these people to run a company? They cannot even run the COUNTRY! And for those of you who wish to blame the past 8 years and bush, see below...from the New York Times , dated 9 30, 1999:

AMEN. Another person who actually gets it.