GM Bondholders are not happy about the GM deal because the government seems to be running the same scheme where senior bondholders get a serious haircut while other constituents like the union and the federal government get more. Chrysler set a precedent, so bondholders are likely to hold out, GM will go bankrupt and then bondholders are going to get stuffed.
Meanwhile Deal Journal, the Wall Street Journal blog, sees this deal as a massive bailout. They said the following yesterday:
Some extraordinary things are happening in the bailout of General Motors. Too bad everyone is too numb to notice.
Consider this extraordinary fact: The U.S. government is likely putting up to $50 billion in new money to back the company’s bankruptcy reorganization, according to people familiar with the plan.
Most of this is what is known as a “debtor-in-possession” financing made to companies in bankruptcy protection. The sum is also expected to include $6 billion to buyout GM’s secured lenders and another $7.6 billion requested by GM last week to fund ongoing operations.
It’s clear that a large portion of this amount will be secured with the equity of the “new GM.” Why is the government likely to get equity and not, say, debt with interest and a repayment schedule? Because too much debt would apparently make the company unviable. It’s as if the government has devised an SAT exam for GM, and is blatantly funneling the company the answers.
What is clear is that Team Obama wants nothing to do with a messy bankruptcy or massive job losses. You can bet that they will do anything including bludgeoning bondholders and bailing GM out in order to make this deal work. General Motors is too important to be liquidated or trimmed back significantly, at least domestically.
What happens in Europe is another story. In fact, what is happening in Europe is that the Chinese are now bidding for Opel in Germany. If you recall, last year the Germans wrote a law specifically designed to keep the Chinese out of Germany (see my post “Germans to SWFs: keep your hands off our companies“). So I see it as rather unlikely that the Chinese will get Opel before Fiat or Magna. The German government might use the Chinese for leverage over other bidders. However, there is zero chance that Germans would allow the Chinese to take over a prized German company like Opel.
Later today, we are to hear who the preferred bidder for Opel and Vauxhall is. While this is an important piece of the puzzle, it is unlikely to prevent bankruptcy.
Video below on the American side of things.