22 Mar 2009

GM bondholders appeal to break impasse in talks

9:03 am on 22 March 2009

Advisers representing General Motors Corp bondholders on Friday issued an appeal to the automaker and US officials to break an impasse in a crucial round of debt restructuring talks.

GM's $US13.4 billion in emergency loans from the US Treasury set a target for the automaker to cut its $US27 billion in bond debt to a third of its value by swapping bonds for stock in a recapitalised company.

But a committee representing thousands of GM bondholders has resisted those terms as both unfair and uncertain to succeed in keeping the struggling automaker out of bankruptcy.

Advisers to the bondholders issued a statement saying there has to be some level of shared sacrifice from all stakeholders.

Bondholders presented GM and the White House task force overseeing the restructuring of the auto industry with a set of proposals earlier this month.

Details of that proposal have not been disclosed, but people with knowledge of the negotiations have said bondholders have proposed swap terms that would include incentives for investors to participate.

One of the ideas to achieve that aim -- a government guarantee on GM's remaining debt -- has hit strong opposition.

Union owed $20m

GM's talks with bondholders, which have stalled in recent weeks, have played out in parallel to talks between the automaker and its major union, the United Auto Workers.

Like bondholders, the UAW is being pressed to accept stock in a recapitalised GM in exchange for debt forgiveness.

The union is owed roughly $US20 billion from GM for a retiree health-care fund. It faces pressure from GM to take half of that in equity under the terms of GM's bailout.

The UAW says its higher payout ratio is justified because of concessions the union made in 2005 and 2007 that cut GM's retiree health care liability by about 40%.

In a letter to congressional representatives made public this week, UAW lobbyist Alan Reuther also said bondholders were making demands for deeper union sacrifices that would push some 775,000 GM retirees toward hardship.

Much of the automaker's debt stems from borrowing intended to shore up funding for its pension and retiree benefit programs from earlier this decade.