Regnat Populus

The people rule.

Update: GM Gets Bailed Out, Then Bails Out – UAW To Eventually Own GM

Posted by Max Barron on April 28, 2009


UPDATE:  (For the original post click here)

I hate to say it… but I was right. 

It looks as though the Fedzilla will be snatching up 50% of GM, the UAW gets 39%, and the bondholders (who have the most invested – $27.2 billion) get screwed with 10%.  This according to The Washington Post.

Government ownership is an unfortunate outcome of this, not a goal,” said one person familiar with Obama administration deliberations and who spoke on condition of anonymity in order to preserve his relationships with officials. He said the government “could have gotten nothing for something, or something for something” and that it insisted on a 50 percent stake to leave open the potential to recover some of the $18 billion the Treasury Department has already lent GM and the additional $9 billion that it would inject under the new plan.
Meanwhile, however, bondholders pose a major stumbling block to the restructuring. Under the proposed offering which GM filed with the Securities and Exchange Commission, investors holding $27.2 billion of GM bonds would swap those bonds for 10 percent of the equity shares of the restructured company. The United Auto Workers would get up to 39 percent of the company in return for half of the $20 billion GM owes to a health fund for retired workers. Current shareholders would get 1 percent of the new shares.

Essentially what we have here is a good old fashioned shakedown – Chicago style.

  • Fed invests $18.4 billion – This translates to a %50 share.
  • UAW is owed $10 billion – This translates to a 39% share.
  • Bondholders invested 27.2 billion – This translates to 10% share.

Someone call every accountant and mathematician, we’ve had it wrong all of this time!  Obamanomics 101, those who have least amount invested gain the most amount of shares – Fedzilla is of course the exception to the rule, as it will always get the biggest piece of pie.  There the whole world was thinking that the MORE one invests the more shares they get… Glad that’s been cleared up.

The simple fact of the matter is that this was the goal the entire time.  A full blown, gun to head hostile take-over, so brazen and obvious that even John Dillinger would marvel at it.  Granted, the bondholders have to sign on to this agreement for it to take place.  Which isn’t likely given that for the proposal to carry 90% of bondholders have to sign on.  Considering that they paid $27.2 billion – 10% share of stock is paltry.  However, if they don’t sign on GM will be forced into bankruptcy court and the outcome will likely be much the same.  Of course, the Fedzilla Chief Executive Stooge, Fritz Henderson eluded to as much.

But a letter to bondholders that was part of the GM prospectus issued yesterday warned that “if we seek bankruptcy relief, you may receive consideration that is less than what is being offered in the exchange offers and it is possible that you may receive no consideration at all for your GM notes.”

Asked about the fairness of the deal, Henderson said that the Treasury dictated the terms for the bondholders, requiring that their future stake be limited to no more than 10 percent of the company. “We went to the maximum and offered the 10 percent,” Henderson said in an interview.

If this were a bank robbery those statements would be the equivalent of a burst of gunshots fired into the air.  Only in this scenario the part of Dillinger is played by Obama, Gettlefinger as Baby Face Nelson and the bondholders are the citizens being forced to lay down and empty their pockets.

One must wonder who will play the role of Purvis?


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