Advisers representing General Motors Corp
GM's $13.4 billion in emergency loans from the U.S. Treasury set a target for the automaker to cut its $27 billion in bond debt to a third of its value by swapping bonds for stock in a recapitalized company.
But a committee representing thousands of GM bondholders has resisted those terms as both unfair and uncertain to succeed in keeping the struggling automaker out of bankruptcy.
All parties can agree that bankruptcy is not a preferred option for GM, advisers to the GM bondholders said in an unusual statement.
There has to be some level of shared sacrifice from all of the stakeholders, the statement said. That's the only way the government is going to get the high level of acceptance from bondholders necessary to achieve an out-of-court exchange.
A committee of GM debt holders including Franklin Templeton Investments, Fidelity Investment and Loomis Sayles & Co have been in talks with the automaker since early this year.
The hedge fund Elliott Management also has been active in brainstorming alternatives for GM bondholders, according to a person familiar with its efforts, who was not authorized to discuss the confidential talks.
GM's talks with bondholders, which have stalled in recent weeks, have played out in parallel to talks between the automaker and its major union, the United Auto Workers.
Bondholders presented GM and the White House task force overseeing the restructuring of the auto industry with a set of proposals earlier this month.
Details of that proposal have not been disclosed, but people with knowledge of the negotiations have said bondholders have proposed swap terms that would include incentives for investors to participate.
One of the ideas to achieve that aim -- a government guarantee on GM's remaining debt -- has hit strong opposition.
Steve Rattner, the former investment banker heading the U.S. autos task force, told Bloomberg Television in an interview on Friday that he may set a deadline for concluding GM's debt restructuring talks.
The government cannot solve everybody's problem, and we need for the bondholders to become part of this in a constructive way, he told Bloomberg.
In their statement, which appeared to be aimed in part at the recent critical statements by Rattner and other U.S. officials, GM bondholders said they were ready to do our part to bring about a workable solution.
We would be willing to work around the clock -- lock us in a room with all the parties if you need to -- so we can work toward a solution that's best for GM, the taxpayers and the company's workers, the statement said.
Like bondholders, the UAW is being pressed to accept stock in a recapitalized GM in exchange for debt forgiveness.
The UAW is owed roughly $20 billion from GM for a retiree health-care fund. It faces pressure from GM to take half of that in equity under the terms of GM's bailout.
The UAW says its higher payout ratio is justified because of concessions the union made in 2005 and 2007 that cut GM's retiree health care liability by about 40 percent.
In a letter to congressional representatives made public this week, UAW lobbyist Alan Reuther also said bondholders were making demands for deeper union sacrifices that would push some 775,000 GM retirees toward hardship.
He also said that some existing bondholders could profit from a 33-cent-on-the-dollar payout ratio because they had bought GM's debt at deeply distressed levels.
Of GM's $27 billion in bond debt an estimated $5 billion is held by retail investors.
Much of the automaker's debt stems from borrowing intended to shore up funding for its pension and retiree benefit programs from earlier this decade.
GM bondholders have been advised by the law firm Paul Weiss in their negotiations with the automaker.
(Reporting by Kevin Krolicki; editing by Carol Bishopric)