Tuesday, June 2, 2009

GM & Investor Rights

Posted on Credit Slips by Stephen Lubben:

David Brooks has a generally smart column in today's Times about GM, in which he notes that the chapter 11 case can only resolve GM's operational and financial problems, it can't change GM's management. And as I've noted before, there are good reasons to worry about GM's management, given their long history of saying the right things while doing the same old things that have had them in a 25-year slump.

But then Brooks drops this line: "the Obama plan rides roughshod over the current private investors and so discourages future investors." If the first part of the sentence were true, I would understand the second part. But what is the basis for the first part? He never explains it, and it comes off like some sort of talking point that accidentally made its way into the article.

I noted yesterday that GM has $27 billion in secured debt. The Daily Bankruptcy Review (no link) today reports that GM has an estimated liquidation value of, at most, $9.7 billion. The "Obama Plan" pays secured creditors in full and gives unsecured creditors 10% of the reorganized company and warrants for 15% more of the company.

Ridding roughshod? The argument may have worked in Chrysler, it makes no sense here.

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