• GM Announces Further Restructuring and Commencement of $27.2 Billion Exchange Offer for Outstanding Debt
  • May 29, 2009 | Author: Darren M. Cooper
  • Law Firm: Alston & Bird LLP - Washington Office
  • Today, General Motors (GM) announced an "updated Viability Plan that will speed the reinvention of GM's U.S. operations into a leaner, more customer-focused, and more cost-competitive automaker."  The new plan "builds on" the Viability Plan that GM submitted to Treasury on February 17 and that was rejected by Treasury at the end of last month.  The new plan accelerates the timeline for a number of important actions and makes deeper cuts in several key areas of GM's operations, including:

    • Confining GM's focus to four core brands in the U.S. - Chevrolet, Cadillac, Buick and GMC - with the Pontiac brand being phased out by the end of 2010;
    • Reducing the number of GM dealers by 42% (from 6,246 in 2008 to 3,605 by the end of 2010), which is a larger reduction, achieved four years more quickly, than originally proposed;
    • Reducing the number of GM plants between 30-35 from 47 and slashing its workforce by 34% to 40,000;
    • In light of projections of even lower U.S. vehicle sales and GM market share (19.5% share in 2009, and ranging from 18.4 to 18.9% in subsequent years), improving U.S. capacity utilization through accelerated idling and closures of powertrain, stamping, and assembly plants; and
    • Reducing structural costs, which GM North America (GMNA) projects will enable it to breakeven (on an adjusted EBIT basis) at a U.S. total industry volume of approximately 10 million vehicles, based on the pricing and share assumptions in the plan.

    GM also announced a $27.2 billion exchange offer that it believes, combined with its updated Viability Plan, will "provide the best path for the future success of the company while enabling it to continue operating its business without the negative impacts of a bankruptcy and reducing the risk of a potentially precipitous decline in revenues in a bankruptcy."  According to its publicly filed Form S-4 registration statement, GM is offering to exchange 225 shares of GM common stock (plus cash for all accrued but unpaid interest) for each $1,000 of principal amount (or accreted value as of the settlement date, if applicable) of certain series of its outstanding notes.  Assuming full participation in the exchange offer, GM will issue an aggregate of approximately 6.1 billion new shares of GM common stock to tendering noteholders.  Concurrently with the exchange offer, GM is soliciting consents from noteholders to amend the terms of the debt instruments that govern each series of notes to (a) remove the material covenants and events of default other than the obligation to pay principal and interest on the old notes and (b) insert an early call option to redeem each series of non-USD old notes for the same exchange consideration (225 GM shares).  Each of the exchange offers and consent solicitations will expire at 11:59 p.m. New York City time on Tuesday, May 26, 2009, unless extended.  According to GM, in the event that it does not receive, prior to June 1, 2009, sufficient tenders of old notes, to consummate the exchange offers, GM "currently expect[s] to seek relief under the U.S. Bankruptcy Code."

    Consummation of the exchange offer is conditioned upon the satisfaction or waiver of several conditions, including the following:

    • U.S. Treasury Condition -  The results of the exchange offers must be satisfactory to the U.S. Treasury, including in respect of the overall level of participation by noteholders in the exchange offers and in respect of the level of participation in the exchange offers by holders of GM's Series D notes due June 1, 2009. GM states that it believes that at least 90 percent of the aggregate principal amount of outstanding notes, including at least 90 percent of the aggregate principal amount of the outstanding Series D notes, will need to be tendered in the exchange offers or called for redemption pursuant to the call option (in the case of non-USD notes) in order to satisfy the U.S. Treasury condition. A 90 percent pariticipation rate is a tough task and whether this level of participation in the exchange offers will be required (or sufficient) to satisfy the U.S. Treasury condition will ultimately be determined by the U.S. Treasury.
    • Completion of the U.S. Treasury Debt Conversion - The U.S. Treasury must have exchanged (a) at least 50 percent of GM's outstanding U.S. Treasury debt as of June 1, 2009 (currently estimated to be approximately $20.0 billion) plus the warrant issued to the U.S. Treasury as part of one of the U.S. Treasury loan agreements for (b) 50 percent of the pro forma common stock of GM after giving effect to the restructuring.
    • Evidence of the U.S. Treasury Financing Commitment - The U.S. Treasury must provide "commercially reasonable evidence of its commitment" to provide $11.6 billion of additional funding that GM currently forecasts it will require after May 1, 2009.
    • Binding agreements in respect of the VEBA Modifications - As required by the terms of one of GM's existing Treasury loan agreements, GM is negotiating modifications to a new voluntary employee benefit association (the new VEBA) established as part of a settlement with UAW and a class of UAW GM retirees. A condition to the consummation of the exchange offers is that (a) at least 50 percent (or approximately $10 billion) of GM's future financial obligations to the new VEBA will be extinguished in exchange for GM common stock and (b) cash installments will be paid over a period of time toward the remaining amount of GM's financial obligations to the new VEBA. It is also a condition to the exchange offers that the terms of the VEBA modifications shall be satisfactory to the U.S. Treasury.
    • Amount of Issued GM Stock - Assuming full participation by holders of old notes in the exchange offer, the aggregate number of shares of GM common stock issued or agreed to be issued pursuant to the U.S. Treasury Debt Conversion and the VEBA Modifications shall not exceed 89% of the pro forma outstanding GM common stock (tendering noteholders would represent approximately 10%, and existing GM common stockholders would represent approximately 1% of the pro forma outstanding GM common stock).
    • Labor modifications - Binding agreements regarding labor modifications required under one of GM's U.S. Treasury loan agreements, on such terms as shall be satisfactory to the U.S. Treasury.