GM Makes The Moral Equivalent of a Hail Mary Pass

GM has released its latest never-never financial plan for an imaginary future where the bondholders evaporate into clouds of fairy dust, while American consumers mob its dealerships, begging for a piece of the GM dream.  The company is apparently planning to ask a bankruptcy judge to enforce the same bond exchange terms it's currently offering its bondholders.  If GM gets its wish, the bondholders will do better by settling out of court, because they won't have the administrative costs of a bankruptcy, which are typically high.

But that's a big "if".  The terms are hardly overly generous:  they're offering to exchange $27 billion worth of debt for about a 10% stake in the company.  The firm's whole market cap is about $1.25 billion, and it looks like its 5-year average EBITD is somewhere in the neighborhood of $400 million.  These are less than encouraging numbers--the analysts contacted by most news sites seem to be valuing this deal at pennies on the dollar.  Meanwhile, the UAW is being asked to exchange $10 billion in health care obligations for a 39% stake.

That's not quite as breathtakingly lopsided as it sounds at first glance; workers, being needed to keep the company going more than bondholders, tend to get relatively generous treatment by a bankruptcy court (and conservatives winding up to say they should just fire the UAW and replace them with scabs should go look at some OB literature.  Firing all the plant workers would probably kill the company, which is in no shape to train an entirely new workforce.)  Still, bankruptcy judges are rarely that generous--if they were, companies would have a mighty hard time floating bonds.  Presumably the government is supposed to quasi-impose those terms as a condition of its debtor-in-possession financing. 

But can it make a credible committment not to provide DIP?  The problem with this deal, as with the attempted Chrysler throwdown, is that the creditors would probably be better off in bankruptcy court even if the company was straight-out liquidated and its equipment sold off to other car companies.  Since the government is plainly not going to let that happen, this has the feel of an empty gesture.