GM Bondholders Group loses Loomis Sayles (Bloomberg)

Loomis Sayles Sells Its GM Bonds,

By Caroline Salas

May 6 (Bloomberg) -- Loomis Sayles & Co. sold all of its General Motors Corp. notes and quit the bondholder group that’s trying to improve the automaker’s debt-exchange offer.

Loomis Sayles, which manages more than $107.7 billion, was part of the original committee of GM bondholders that formed last year after the Detroit-based automaker received federal loans conditioned on a restructuring. Loomis Sayles sold its GM bonds last month and is no longer on the committee, said Erin Heard, a spokeswoman for the Boston-based firm. She declined further comment.

GM and its bondholders are at odds over $27 billion in claims ahead of a June 1 deadline. The bond group called GM’s April 27 offer to swap their claims for a 10 percent equity stake “neither reasonable nor adequate” and asked to be treated more equitably with labor unions. The counter-proposal by bondholders hasn’t been adopted.

GM’s offer is “grossly unfair to the point of abusive,” Glenn Reynolds, chief executive officer of CreditSights Inc. in New York, wrote in a report this week. “Politics remains an overriding factor in the equation and has been decidedly unfriendly to the interest of bondholders in a contest with the disproportionately outsized power of organized labor and other Washington-heavy constituencies and interest groups.”

CreditSights recommends bondholders reject GM’s debt exchange and expects the offer to fail.

Firm’s Holdings

Given the Obama administration’s willingness to place Chrysler LLC into court protection after an impasse with its lenders, GM may also have to file for bankruptcy in order to restructure, said Martin Fridson, CEO of New York-based credit investment firm Fridson Investment Advisors.

Loomis Sayles owned more than $113 million of GM bonds at the end of March, including over 7 percent of GM’s $1.25 billion of 8.25 percent debt due in 2023, according to data compiled by Bloomberg.

The 2023 notes fell 1.3 cent to a record low of 6.9 cents on the dollar at 3:11 p.m. in New York to yield 115 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The debt has tumbled from 20 cents at the start of the year and 72 cents in April 2008.

President Barack Obama blamed “a group of investment firms and hedge funds” for tipping Chrysler into bankruptcy and said he didn’t “stand with those who held out when everybody else is making sacrifices.” The lenders include OppenheimerFunds Inc., Stairway Capital Management LP and Group G Capital Partners LLC, according to court documents filed today.

‘Strange Approach’

Chrysler’s dissident lenders lost a fight to keep their identities secret, revealing themselves after U.S. Bankruptcy Court Judge Arthur Gonzalez ordered the disclosure, overruling concerns about death threats and allegations that Obama’s criticism of their stance would damage the lenders’ reputations.

“The attack on institutional investors by the administration in this process is a very strange approach and borders on demagoguery,” CreditSights’ Reynolds wrote in the report. “The bondholders are being painted into a corner and will have no chance but to stand and fight. You can call them names as long as they get treated fairly. Offer them virtually nothing and then call them names? Now that’s just cold.”

Bondholders met with the Obama administration’s auto task force on April 30 and proposed they get a 58 percent ownership stake in GM in exchange for their claims. The creditor group objected to the automaker’s proposal they get a 10 percent share while a union health fund would get $10 billion in cash and as much as a 39 percent stake for $20 billion in unsecured claims.

GM offered bondholders 225 shares of stock for each $1,000 of principal. At least 90 percent must accept the exchange for the automaker’s debt-reduction plan to work.

Nevin Reilly, a spokesman for the ad hoc committee of GM bondholders, declined to immediately comment.

To contact the reporter on this story: Caroline Salas in New York at csalas1@bloomberg.net
Last Updated: May 6, 2009 15:35 EDT