GM bondholders may prefer Chapter 11

General Motors Corporation

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Bondholders are different from stock  investors. In times of stress, they get to negotiate. They can form committees and  gummy up the works. Thus far their main role in the economic rescue story has been to avoid looking too relieved as stockholders get wiped out. Aggrieved shareholders have taken to calling the government rescue “The Pimco Bailout.” Pacific Investment Management Co., of course, is one of the  powerful global bond fund managers expected to participate in the Treasury’s new public-private investment program for toxic assets.

Well, the prospect of a GM bankruptcy is changing the bondholder story. The President is asking everyone to take a haircut. Unfortunately, bondholders may prefer starting a new chapter in the bailout story, Chapter 11. The New York Times Dealbook explains:

Then there are the bondholders. Their motivation is very different. For them, this is not about keeping their jobs or, frankly, about patriotism. It is about dollars and cents. And, according to some analysts, there is a chance they would actually do better in bankruptcy court than they would negotiating against G.M. or the government, which is seeking to reduce G.M.’s debt by two-thirds.

“If I’m a bondholder, the best forum for me is in front of a judge,” said Daniel Alpert, a founding managing director of Westwood Capital, an investment bank. “Let’s face it: the biggest problem at G.M. is still its cost basis, and that’s chiefly labor,” he added, suggesting a judge would look at the situation dispassionately.

via Dealbook – G.M. Bondholders Must Participate in Talks – NYTimes.com.

GM bondholders who own $28 billion in debt have formed an ad hoc committee which e-mailed the Times its concerns. The group wheedles and whines and then threatens: “Unless the framework we suggested is utilized,” the group said, “the restructuring currently contemplated will not achieve the required level of acceptance to succeed on an out-of-court basis.”

Transparency is not the calling card of the ad hoc group. Spokesman Gabe Roth refuses to identify any members. Little wonder. With the mood in Congress and on Main Street, who would want to stand up and say: “I’m willing to thwart one of the biggest re-structuring in corporate history for a few more pennies on the dollar”?  You think those AIG bonus babies got a hard time? Imagine the bus tours unemployed UAW members, retirees, and car parts suppliers might organize in response.

But the identities of the major investors are no secret, the Times notes. They’re available in regulatory filings and include Capital Research & Mangement; Loomis, Sayles; and Pimco.

Come on guys, if GM tumbles into bankruptcy (which it may anyway), you don’t really want everyone fingering you — even someone like me, a Pimco investor.

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