Financial Times: GM's New Offer to Bondholders

GM plans new offer to holders of bonds
By Bernard Simon in Toronto

Published: April 24 2009 03:00 | Last updated: April 24 2009 03:00

General Motors is set to make a fresh debt-exchange offer to its unsecured bondholders on Monday consisting almost entirely of equity in the beleaguered carmaker, which would be far less generous than previous offers.

GM, which is racing to meet a June 1 restructuring deadline set by the US Treasury, will also soon outline a fresh set of proposals to the United Auto Workers union aimed at reducing labour costs. In February, GM demanded the UAW accept shares rather than cash for half of its contribution to a union-managed healthcare trust to be set up next year.

The plan required unsecured bondholders to exchange at least two-thirds of their holdings, with a face value of $27bn, for equity and other securities. GM's last offer totalled 24½ cents on the dollar, comprising 8 cents in cash and 16½ cents in new unsecured debt.

But the US administration's industry taskforce has demanded deeper sacrifices.

Neither the bondholders nor the union are keen to commit themselves without knowing what deal has been cut with the other. However, legal requirements, such as minimum offer deadlines, have forced GM to give priority to the bondholders.

Separately, the deadline for Delphi, GM's biggest parts supplier, to reach agreement on outstanding issues with GM has been extended to May 4.

Production cuts

General Motors plans sharp cuts in its North American vehicle production this summer to bring down swollen inventories caused by the steep drop in demand for its cars and trucks.

The embattled carmaker also ascribed the cutbacks to concern about the stability of Delphi, its biggest parts supplier, which has been struggling to emerge from bankruptcy protection for more than three years.

GM said the normal two-week summer shutdown would be extended by one to eight weeks at 13 of its 20 assembly plants in an effort to reduce dealer inventories.
Copyright The Financial Times Limited 2009