On its face, the GM (GM) bondholder counteroffer looks like a better deal for taxpayers than the original one proposed by the administration. Odd, right?
Under the old one, the Treasury would own a 51% stake in the company, and cancel much of its debt. Under the new plan, the bondholders would own the majority of the company, the Union would own a little less, and the government would own nothing, but keep the entirety of its debt. So what’s the problem?
Well, as explained here at Seeking Alpha, the union pension fund loses out on a $10 billion payment. Plus, the union wouldn’t have the government as its owner, which means no kid gloves in the future.
So who will the administration side with: Taxpayers (in which case they should be open to the bondholder offer) or the union (in which case they should keep pushing for the original deal).
The thing is, if the government completely washed thier hands of the situation, it’d be an epic disaster for the union. The company would go into liquidation and every union worker would lose their job.
The way it will actually happen is that the company will go into bankruptcy, but the government will provide the DIP funding — which is essentially an ongoing (albeit circuitous) union bailout.
Bottom line, the bondholder counteroffer should be workable and amenable to an administration that simply wants to see the car companies survive (and jobs preserved) unless they have a problem forcing the union to take a further hit.