Obama and GM (Government Motors)
May 27, 2009 by Steven Ting
Filed under Business, General
Bondholders of GM soundly rejected the offer placed before them, to swap their debt for 10 percent of the new company. I am one of those bondholders and the numbers presented just did not make sense. Bondholders hold $27 Billion in GM Debt. The UAW Trust has $20 Billion owed to them. The Government has loaned an additional $20 Billion to GM. But under the proposal required by the Obama Administration, the bondholders would receive 10 percent, the UAW Trust would receive 39 percent, the Government would receive 50 percent, and existing shareholders would receive 1 percent.
Just taking a ratio of the numbers, the bondholders are getting screwed. It is not surprising since Obama seems to be against industry. Looking at the numbers alone, bondholders should receive 40 percent, UAW Trust 29 percent, Government 29 percent, and existing shareholders 2 percent.
But yesterday during negotiations, the UAW Trust agreed to only take 17.5 percent with the option of an additional 2.5 percent through warrants. This leaves an additional 19 percent to be split, on the table. But according to the government, the most GM can offer bondholders is 10 percent of the company. This is a guarantee fail. Instead of offering the bondholders the additional 19 percent, bringing it up to a total of 29 percent, the remainder goes to the government.
So if the bondholders were to approve the debt swap, they would still only get 10 percent, UAW 20 percent, Government 69 percent, and existing shareholders 1 percent. We’ve talked about socialism. This seems more like communism. The Government is placing demands on a private entity and will take 69 percent of the company.
If Obama lets his plan happen, things will get tougher for the lower and middle class. The largest of the bondholders are banks. If banks are not able to recover their money, how likely are they to provide future loans or to purchase debt? If the Government can come in and take over a company, I don’t want to have any part of it. Why would I buy their stock? Why would I buy their debt?
We’ve seen how the Government runs things. Government and business don’t mix. The government runs the postal service. The government runs the VA hospitals. The government runs the DMV. Now we want to let the government run an automobile company?
I was just looking for information about this when I found your post. I’m only stopping by to say that I truly enjoyed reading this post, it’s very well written. Are you planning towrite more about this? It appears like there’s more material here for more posts.
I may write more about this. It depends on what GM decides to do with bankruptcy and the response by the Obama Administration.
got here from madogre.com
perfect blog. will read regularly.