GM Shareholders: Not Gonna Do It

General Motors’ bondholders flat out rejected a government-union “nationalization” plan today, meaning that the granddaddy of all American automakers is headed for bankruptcy court.

The bondholders – many of whom sunk their retirement money into the flagging company – refused to exchange $27 billion in debt for equity in the company under a government-backed deal that would have left them with a mere 10% ownership stake.

The government, on the other hand, would have walked away with half of the company despite putting in less than half of what is owed the creditors.

From Forbes:

A (bankruptcy) decision won’t come before Friday, at the earliest, however, because GM must wait for the results of a ratification vote by members of the United Automobile Workers union on new labor terms. A bankruptcy has much higher chances of success if a new labor deal is in hand before the filing is made, experts say.

The most important aspect of the new labor deal is a tentative agreement on retiree health care. GM owes $20 billion to a union trust fund set up to pay retiree health benefits. The proposed deal would instead have the union accept a 17.5% stake in the automaker, along with $6.5 billion in preferred stock and a new $2.5 billion note, plus a warrant for another 2.5% if GM stock rises.

The union could end up owning about 20% of a restructured GM, with taxpayers owning as much as 70% and bondholders owning the remaining 10%. Sources familiar with the discussions between GM and the U.S. Treasury say those numbers could change.

Wait … why is the federal stake going up in the bankruptcy process?

Oh that’s right, Barack Obama is going to pump tens of billions of dollars in additional government loans into the company.

Duh, how stupid of us.

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