'New GM' still must settle up with 'Old GM'

The stage appears set for General Motors Corp. — or "Old GM," as it called itself in a regulatory filing yesterday — to file for bankruptcy on Monday.

And where will that leave the widows and orphans?

Depends on whose widows and orphans you mean.

More than in the bankruptcy of privately held Chrysler, a GM endgame pits one group of individual retirees (many of the public bondholders) against another (retired members of the United Auto Workers).

In preparation for selling itself to the U.S. Treasury to become "New GM," the company says its bondholders, including institutional investors along with individual retirees, widows and such, would lose their current holdings. In return, they would get a 10 percent ownership stake up front, plus warrants for future discount purchases of up to 15 percent more of the reconstituted company.

Meanwhile, a 17.5 percent stake in New GM would go to a health care trust serving the needs of GM retirees.

Washington, which now calls the shots in this matter, would own a 72.5 percent share of the century-old car maker. Thus the jokes about Government Motors.

Heretofore, GM bonds were a gold standard for reliable investment income from interest — an attraction for people on fixed income.

The bondholders have contended they deserve as much as a 58 percent stake, based on their holding $27 billion in GM debt. About 35 percent of the holders support the latest offer.

Others were still screaming foul yesterday.

"There's no conceivable reason for every group at the table to get a better deal than the small bondholders," investor Mark Mondica, business manager of a Saturn dealership in Chalfont, said on behalf of a bondholder group. "This deal is being financed on the back of public bondholders," he said.

A lawyer trying to organize GM bondholders to make a stand in bankruptcy court told Bloomberg News yesterday that the losers in a GM bankruptcy would be Main Street, not Wall Street.

"Whereas the 'bad guys' in Chrysler were hedge funds, who Obama called 'speculators,' here they're Main Street — individual retirees who bought bonds when they were like gold bullion," said the lawyer, Thomas Lauria.

Guy LeBas, chief fixed income strategist at Janney Montgomery Scott L.L.C. in Philadelphia, said it's a "reasonable assessment" that politics is putting an excess of eggs into the UAW's basket.

"Many bondholders still hope that bankruptcy will take politics out of the whole process," he said.

GM says the bondholders have until 5 p.m. tomorrow to decide if they'll take the proposed deal.

Without their support, Old GM told the Securities and Exchange Commission yesterday, the amount of equity and warrants for bondholders will be "substantially reduced or eliminated."

Stand by.