US President Barack Obama is using questionable tactics to restructure General Motors, tactics similar to those that he used with Chrysler less than one month.
In an announcement on Monday, Obama said the US government is injecting $30 billion into General Motors to take a managing ownership stake. As part of the restructuring, at least 54% of GM’s unsecured bondholders agreed to exchange $27.1 billion in debt for 10% equity in General Motors.
With Chrysler, Obama forced bondholders to favourably restructure themselves to encourage a sale to Fiat, or face liquidation. In General Motors’ case the US government is playing the role of Fiat and taking a priority stake in the company above traditional bondholders.
Obama’s approach to restructuring General Motors is closer to the legal statute than it was with Chrysler, but creditors are frustrated that they are moving down the credit ladder without a further plan for creditor restructuring.
“I’m surprised by the whole thing,” said one US partner in New York. “When Chrysler filed they had a plan going forward for creditors. It doesn’t seem like that’s the case here. The government is just stepping in and moving the company’s infrastructure around.”