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In news that should surprise absolutely no one, General Motors is a step closer to bankruptcy this morning.
Yesterday was a key deadline in GM's restructuring schedule: the day by which the General had to reach important concessions with its bondholders. GM is indebted to those bondholders to the tune of $27 billion, and at this point, it can't afford to pay out the interest on those bonds (June's bill: $1 billion). GM was hoping that 90% of the bondholders would be willing to swap bonds for stock and lighten the company's debt load, but alas, no dice.
The bondholders' refusal likely had something to do with the offer on the table: the General was willing to give bondholders 225 shares in exchange for each $1,000 they held in bonds. As of this morning, that translates into about $290, or a 71% loss on the bondholders' investment--which is certainly painful, but it's a king's ransom compared to what bondholders may get after restructuring.
Also unattractive to bondholders: if they'd taken the stock offer, they would've held just 10% of the company, with up to 70% held by the feds and another 20% controlled by a union-managed trust. (Things might've gone differently had GM offered the 58% ownership bondholders requested.)
So at this point, GM's bankruptcy is almost a foregone conclusion--even if the company's negotiations with the union, creditors, and other concerned parties go off like a cakewalk. And really, what are the chances of that happening?
[source: CNN et al]