I hate to say it, but if I was a GM bondholder I'd tell them to take their offer and shove it
Several years ago I owned both General Motors and DaimlerChrysler bonds. After witnessing the direction that both companies were headed first hand, I eventually decided take a small haircut and sell my bond holdings in both companies. It wasn't easy to do either, their credit ratings had fallen to the point that I couldn't sell them on-line with a few clicks of the mouse like one can with most other investment grade bonds. Instead, I had to place a call to a broker (yes on the telephone, how old school) and sell them OTC for what I could get for them. Boy am I glad that I did, they are practically worthless today.
I hate to say it, but if I was a General Motors bondholder right now, and again thank goodness I'm not, I'd tell them to take their current offer and shove it. The patriotic part of me feels bad saying this because a GM bankruptcy will have a negative impact on thousands and thousands of lives and it would be bad for America, but people who are Machiavellian are probably much more successful investors than patriots. When people buy an investment like a senior bond they are supposed to be at the top of the capital ladder. How can the government offer GM bondholders $0.10 on the dollar in equity in GM, not even cash, for their bonds and offer the UAW who is owed $7 billion less a 39% equity stake?
This offer makes absolutely no sense. It's insulting. I don't know what the liquidation value of The General is, but if I was a bondholder, as horrible as this is to say, I would probably rather take my chances in bankruptcy court than accept a deal like that.
On a related note, I told you that Chrysler was toast (see post: Chrysler is soooooo doomed). A number of people gave me flack for making this call back in January. I have seen this coming for a while now and first wrote about it here on CAPS a little over a year ago when I said the following (see post: Auto Industry Analyst: "current market for light vehicles in the U.S. is about as bad as I have seen it in the past decade."):
The one automaker that is probably in the worst shape right now is Chrysler. It it absolutely shoveling money at its vehicles in the U.S. right now through higher incentives and it doesn't have any plans for outstanding new products that I am aware of. New products are the lifeblood of automakers. Without them, it is difficult to succeed in this market. Compounding the lack of new products in the pipeline is the fact that the quality of Chrysler's current products is significantly below that of its competitors, especially the Japanese.
As someone who makes his living in the industry, I certainly derive no pleasure in being right about this mess. It will be interesting to see how this story plays out and what actually happens to a major automaker that files for bankruptcy. I fear that the process will not be nearly as clean or neat as many in the government believe.
I actually am fascinated with the whole process, sort of like how some people find those disgusting body exhibits are fascinating and educational (they are one of my biggest personal pet peeves...man I hate those things. Nothing like exploiting dead Chinese people).
I'm sure that I'll have a lot more to write on this process over the coming weeks.
AP sources: Chrysler to file for bankruptcy
GM bondholders launch counter-offer