Rumors have swirled for the better part of a week that General Motors (GM) would try to strong-arm its creditors to go along with the company's restructuring before the auto maker is forced into a government-assisted bankruptcy.
The next program that will have a turn at bat is one in which GM will tell its unsecured bond holders that they can trade all of their debt for equity or be damned. The creditors will have to gamble that they will do better in bankruptcy court.
According to Reuters, "The Obama administration has directed General Motors to prepare a new restructuring plan that would pay off bondholders and the automaker's major union in stock in exchange for $48 billion in debt."
The creditors may be wise to allow the issue to go to court. Equity in GM is only worth something if the company recovers from its current malaise, and that is not likely. It faces a recession that could keep domestic auto sales at their current level of about ten million vehicles a year. It's also up against Asian car makers that need more market share to get their own U.S. divisions back into the black.
At least in a Chapter 11, bond holders might get a few cents on a dollar.
Douglas A. McIntyre is an editor at 24/7 Wall St.