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May 26, 2009

Government Motors...US May Take Huge Stake In New GM

I honestly never thought I'd see this in my life time.

With the United Auto Workers agreeing Tuesday to take a much smaller stake in GM than originally expected, the automaker has about 19 percent of its equity with which it could potentially sweeten the pot for bondholders. But the Treasury is reportedly planning to fork over as much as $50 billion in debtor-in-possession financing to help the cash-bleeding company through its restructuring, The Wall Street Journal said late Tuesday. In return, the government could demand up to 70 percent of GM's equity, the paper said, citing people familiar with the matter.

All of this is still being negotiated and bond holders aren't happy with the proposed debt for equity swap, so this process is a long way from done.

GM says it needs 90% of bondholders (who unlike in the case of Chrysler are unsecured) to approve the plan and avoid going Chapter 11.

"It's nowhere near 90 percent," said Kip Penniman, analyst for KDP Investment Advisors. "If GM announced they got low single-digit participation, it would be a slap to GM and the absolute response to the Treasury-mandated offer. ... A cynical person would say that the offer was set up to ensure GM would go into Chapter 11 and provide the government a scapegoat."

Always have an enemy to blame, it's the Obama way.

Frighteningly related...Gabe blogged earlier about possible political considerations in the Chrysler dealership closings. Well, here's more, including a Chrysler dealer on FNC who says he's in 'the upper 2% of dealers' and is being closed. (via Slublog's Twitter feed)

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posted by DrewM. at 09:16 PM

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