You may recall that President Obama recently referred to certain Chrysler creditors as “speculators” because they expected more for their investment in the troubled automaker than the 29 cents on the dollar the Administration was offering.
Most of those creditors have since given up their legitimate claims, rather than face continued tongue-lashings from the president.
But GM bondholders have learned from the Chrysler experience. Confronted with another raw deal by another bankrupt car company hiding behind the government’s skirts, they’re raising a stink about the real-life effects of abrogating contracts.
The problem? GM’s latest restructuring plan, approved by the Obama Administration, would offer the federal government a little over 50% of the company’s equity. The UAW would get another 39% in return for releasing $10 billion in GM debt obligations. Bondholders would end up with 10% of the equity in return for dropping $27 billion of debt.
The practical result: bondholders who rely on interest income and a fixed value for their investment will instead get equity shares with fluctuating, uncertain values and no dividend payments.
And here’s the communications nightmare for GM and the Administration: Many of the debtholders aren’t hedge funds and huge banks that can be arm-twisted and abused by the president’s “you don’t play fair” rhetoric. They’re ordinary retirees whose GM debt has been supplementing Social Security income, or who had hoped to redeem the bonds to pay for their children’s education.
These bondholders have been on Capitol Hill this week, lobbying anyone who will listen about the consequences of the GM/Obama raw deal. Mindful of the Chrysler abuse, one retiree said explicitly at a news conference: “I don’t know of any speculators here. What we expect … is fair treatment.”
The Administration’s response so far has gone from bad to worse. They suggest (with all the subtlety of a guy named Fat Tony) that this is the best deal bondholders are likely to see. And they hint at a resurrection of the “speculator” theme, insisting that some debtholders bought their bonds “on the cheap” — after prices had dropped — and therefore can’t expect to get face value in return.
By this logic, it’s only a matter of time before the president starts using air quotes whenever he says the word “dollar.”
The good news is that groups like the 60 Plus Association are organizing bondholders early, not waiting until the president gets the first shot across the bow. Chances are, they’re financially screwed anyway. But since neither banks nor automakers have the political independence to oppose the Administration, it’s reassuring to know that some people are willing to speak up for their rights.
