GM Bondholder Agreement

The New York Times is reporting that GM bondholders have reached an agreement on restructuring their debt stake. Currently there are $27 billion in outstanding bonds. For that outstanding debt, the restructuring will offer a 10% equity stake in GM with an additional 15% available through warrants (a financial instrument allowing the holder to purchase stock at a later date for a 'fixed' price - hopefully the value of the stock goes up sufficiently to make the warrants valuable - much like a stock option).

Here's where the math gets interesting. There are about 600 million shares of GM stock outstanding, 10% of that is 60 million shares. The closing price for General Motors on 5/29 was $0.75. So without the future prospect of exercising warrants, the value of the 10% stake is about $45 million. Talk about a BAILOUT - GM wipes out $27 billion in debt for $45 million. And talk about taking a bath - the only way a bondholder could have gotten off worse would be to have invested in one of Madoff's schemes. ; -)

I'll say it again - if you have a company with a unionized work force, that may some day find itself asking this government for help, have fun trying to raise capital by issuing bonds.