The Administration Monday, while unveiling a plan aimed at reviving car sales, hinted that the deal terms would have to change. In a fact sheet handed out in conjunction with President Obama's discussion of the GM situation early Monday, the White House said:
“The restructuring must substantially reduce GM’s outstanding debt and existing liabilities to a level where they are consistent with both its normalized cash flow and the cyclical nature of its business. Given the deterioration in the auto market since late last year, this will require substantially greater balance sheet concessions than those called for in the existing loan agreements.”
The existing loan agreements refers to the term sheets put out last December when then President Bush extended a loan to GM. That term sheet said the company’s debt must be reduced by at least two-thirds through conversion into equity or new debt, and that at least half of GM’s retiree health care benefits liability had to be paid to the unions with some form of company stock instead of cash.
Some debt market participants believe the auto task force could come back to the bondholders and tell them they will receive only equity and no unsecured debt as part of the offer.
The ad hoc committee of GM bondholders said in a statement Monday afternoon that "bondholders have been and remain willing to reduce GM’s future debt burden by exchanging a substantial part of their debt for equity, but that exchange must occur in support of a business plan that has a chance to succeed."
The bondholder group, though, said that it so far has been "very disappointed that the government and company have had virtually no real dialogue with bondholders while designing the proposed restructuring plan."
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