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Behind The Wheel
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GM's Next Move Will Be The Toughest
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AP General Motors Headquarters |
Anytime a company says it may need up to another $16.5 Billion to fix its business, there's no way to sugar coat it. GM [GM
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] is knee deep in trying to turn around a money losing operation. So deep the company may just shut down the HUMMER brand if it can't sell it by the end of March.
But the toughest part of GM's turnaround will happen over the next six weeks.
That's when GM tries to convince bondholders to convert $18 Billion over their debt into stock equity. The bondholders are being asked to take 30 cents on the dollar for their investment. Not only that, but converting their debt into stock will drop them further down the totem pole when it comes to a claim on GM if the company goes bankrupt in the future. As you can see, it ain't a great deal.
This is why those holding GM bonds are asking if this company, and their stake in it are better served with GM in bankruptcy. Keep in mind, a chapter 11 filing would mean a creditor's committee (filled in large part with debt holders) could hammer out how GM restructures, who controls the company, and in large part, what a new GM would look like.
GM did an analysis if bankruptcy and says it could cost the Federal government more than $100 Billion. That's three times more than the company's current aid request in a worst-case scenario. In addition, going into bankruptcy could dramatically hurt revenue by scaring off buyers.
So over the next six weeks, GM has to convince it's bondholders that converting their debt outside of bankruptcy court, is the best approach for everyone involved. It won't be easy. It will likely need to involve the Obama auto team stepping in to work out an agreement.
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