Personal fortunes riding on the fate of GM's debt
GROSSE ILE, Mich. — Retired Chrysler LLC project manager Clifford St. Pierre and his wife Patricia bought $200,000 in General Motors Corp. notes three years ago, thinking it was a sound way to finance their retirement.
The 10-year securities carry a 7.2 percent interest rate and what they viewed as an almost bulletproof yearly payout of more than $14,000. "We made a decision to buy bonds in the largest manufacturer in the world," he said from his home on Grosse Ile, an island in the Detroit River about 25 miles south of GM's headquarters.
Their next semiannual payment is due in July, but St. Pierre, 70, now spends his free time scouring news reports, trying to figure out whether that check will ever be in the mail.
His biggest fear is that he'll lose most — if not all — of his original investment if a debt-for-equity swap for GM shares that's being talked about happens.
A group of institutional investors that includes Fidelity and John Hancock formed a committee to negotiate terms of such an exchange with GM, which is seeking to slash its debt and make other cuts to stave off bankruptcy and receive more federal aid.
The parties haven't held formal talks since late March, and in the meantime the value of the unsecured notes similar to those bought by the St. Pierres continue to slide. They now trade on the secondary market for about 9 cents on the dollar, down from close to 90 cents a year ago.
Although large investors hold the bulk of GM's $28 billion of unsecured debt, about $5 billion to $6 billion of that debt is held by individuals like the St. Pierres who are finding that they have little say in, or knowledge of, the negotiations.
"I have to believe the committee is doing what they can to get the best possible deal," St. Pierre said. But he worries that the larger investors will eventually agree to accept a big haircut and move on, leaving him and his wife facing the prospect of getting only pennies on the dollar — or just equity in a new GM, as the government's auto task force has suggested. That would wipe out 80 percent of their total retirement savings.
GM has been surviving on $15.4 billion in loans from the Treasury Department and would get more if it can satisfy the government with its restructuring efforts. Although GM also needs concessions from the United Auto Workers union to qualify for the money, President Barack Obama has said further government support depends on GM substantially cutting its debt load.
If bondholders reject demands from GM and the government, the Detroit automaker will likely seek Chapter 11 bankruptcy protection that would leave it up to a bankruptcy judge to determine the terms of extinguishing GM's debt. St. Pierre and other individual bondholders would be forced to go along with whatever the court deems appropriate to keep GM afloat.
"It's very possible they would wind up with just a fraction of the face amount," said Richard Hilgert, president of Automotive Financial Research LLC. "The court might be willing to throw a bone to those lower on the recovery waterfall, just to make the process move a bit more quickly."
The government is demanding GM cut more than two-thirds of its unsecured debt, and it's reportedly pressuring GM to offer bondholders only equity in the revamped company. In that case, their recovery would depend on the automaker's stock performance.
"There's no carrot, no real attractive carrot to get individual bondholders, or even institutional ones to take it," said Kip Penniman, managing director for KDP Investment Advisers. "There's going to be a substantial number of holdouts that say 'no' without a meaningful incentive."
GM has said it is preparing a public exchange offer that will finally tell every bondholder — large and small — what the company is offering. The details will have to be released soon if GM wants to retire its debt before the government's June 1 restructuring deadline.
If St. Pierre participates in such an exchange, he likely would get at least a small part of his investment back. If he rejects the offer, and if a bankruptcy court doesn't force him to exchange his bonds, he could hold them until they mature in 2011 in the hopes of getting some or all of his principal back. Such an outcome, however, is unlikely.
St. Pierre said he doesn't know what the better option would be right now, as neither option would be enough money to cover a medical emergency or leave to his three adult daughters and grandson.
Overall he wants the task force to "lighten up" on squeezing concessions out of bondholders, and he's called the offices of U.S. Sens. Debbie Stabenow, D-Mich. and Carl Levin, D-Mich., to urge them to pressure the auto task force to consider the plight of small investors.
Stabenow, at a recent event in Detroit, said she's addressed the issue with chairman Steven Rattner and others on the auto task force.
"I am constantly reminding them about families and retirees in Michigan, and how this affects people differently than it does the bondholders on Wall Street," she said.
Apr 27, 2009 at 10:22 p.m.
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Yes, a lot of the article was about a retired project engineer who made a bad investment. Even if he loses most of that 200g, he will have Social Security for him and his wife, which is probably about $3000. He probably has other investments, he probably has a pension from Chrysler, his wife might have a pension, he probably has substantial savings, he probably made around $100,000 per year for many years.
He is not poor, he will not be poor if he loses his 200g. There is not much sympathy here. I see it as a whine when it is about those people. Worst case senario for him, he might have have to live slightly lower.
Apr 27, 2009 at 4:24 p.m.
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Sad story but no real good news for them. Investing is like gambling and they tried a safe bet that didn't work out.
Apr 27, 2009 at 3:55 p.m.
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hankhill, so we're playing the blame game here? If that's the case, blame the entire GM workforce. The union is made up of "people". They have elections to decide who's in office and who isn't. The UNION didn't make this mess, it was a TEAM EFFORT. Just like the state of this country. People come into this world kicking and screaming and are taught to be idiots. These educated idiots are also "people" and are also citizens of this country. Believe it or not, even the politicians in this country have to be citizens before becoming elected officials. Who put these officials in office?? YOU and ME, "citizens"! Same as the officials in the UAW. If that's the case, the blame is on everyone! It's a TEAM effort. Too many people get wrapped up in the blame game that they forget to look in the mirror and see what's staring back at them. Maybe more people should point at themselves as opposed to their neighbor and see what they can do that's constructive. If we all do that, we can make a difference! One of us isn't as good as all of us!
Apr 27, 2009 at 3:10 p.m.
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Who said things went unreported? Many people were disciplined, even fired. The articles were in the Gazette. In all of society you have bad apples, every workplace has at least one. Put 7,000 people together and you will get a certain percentage of them. I`m over 60 years old and have been around GM workers my whole life, I have never met one who thought he was better than anybody else because he worked there. I have met some who thought they were better, but they would have thought that no matter where they worked.
Apr 27, 2009 at 2:23 p.m.
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Hankhill~ That's the real GM workforce??? I must have been an invisible entity at the plant then when I worked there. Never took part in booze and drugs once, nor have I since, yet you have the gall to say that's the GM workforce?? I won't speak for others, however, I know there were many there who didn't partake in that garbage either. Get your facts straight before condemning an entire workforce like you're attempting to do!
Apr 27, 2009 at 2:19 p.m.
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bobb1951..I like how you think! It's called personal responsibity for our actions. We reap what we sow. Our country's future is no different either. We choose the leadership of this country and it's letting us down. It's on us! We need to start holding people responsible by making "accountability" a standard! Great post!
Apr 27, 2009 at 11:25 a.m.
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zoom, a negotiated benefit is money not paid directly to a worker but paid by the company for sub, pensions , health care. It is money that could have been in the workers pockets, no spin, just a fact.
Apr 27, 2009 at 11:17 a.m.
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Oh, and your comment about American quality is just outdated and plain uninformed.
Apr 27, 2009 at 11:16 a.m.
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You right HankH, the foreigners are happy to get substandard wages , and you your $10 wrench, because people who ACTUALLY do the work to make products DO NOT DESERVE a fair cut of the profits. Let's have America go backwards in our living standards, and let's ignore that 20% of the people own 84% of the wealth. Everyone like you who are just bitter about people getting better wages, while we see very little of the real profits, is just what those 20% love to see!
Apr 27, 2009 at 11:03 a.m.
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truthteller - I know he isn't the top of the pyramid scheme, he is just the tool they used to rip this country to shreds.
Apr 27, 2009 at 3:41 a.m.
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"That would wipe out 80 percent of their total retirement savings."
Did these people not have a financial advisor? Why would you invest your retirement money into a single asset that could wipe out 80% of your retirement?
Apr 27, 2009 at 3:19 a.m.
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"the retirees get screwed if gm goes bankrupt,losing 40% of their retirement."
rooster, you are correct. GM has screwed the retirees. I'm still surprised there isn't more anger from them. Many still seem to believe GM's spin that it was all the markets falt for their problems, and not poor management.
Obviously the people mentioned at the beginning of the article didn't do their research. Why would you give your retirement money to a company that has consistantly lost market share every year for over a decade?
Apr 27, 2009 at 3:10 a.m.
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"Sub-pay is the workers money put aside for layoffs. Grow up!"
Come on pharm, calling sub pay "workers money" is getting old. Who pays (paid) workers to "put aside" that money, on top of their already above average wages? Sub-pay is a benefit paid for by the Company, just like insurance or a pension. You can try to spin sub pay as some sort of sacrifice all you want, but nobody buys it.
Apr 26, 2009 at 8:39 p.m.
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Sub-pay is the workers money put aside for layoffs. Grow up!
Apr 26, 2009 at 7:42 p.m.
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vader dude this goes much deeper than Bush and republicans.... if you can't see that your part of the problem.
Apr 26, 2009 at 7:16 p.m.
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Well, we can thank George Bush and the Republican fat cats for running this country into the hole it is in now! Don't believe it?
Look at this chart of the Nation Debt:
http://www.lafn.org/politics/gvdc/Natl_D...
I'm still waiting for that trickle down money to come my way.
Apr 26, 2009 at 6:49 p.m.
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some say that with the all gm shutdown for about 8-9 weeks, gm will hord cash to get itself in a good position to go through bankruptcy, spitting out saturn, saab, hummer and any other turkeys out there and pressing forward with chevy, cadillac, and buick and of course, gmac. the retirees get screwed if gm goes bankrupt,losing 40% of their retirement. that means more 60-80 yr olds entering the job market...ha
Apr 26, 2009 at 6:47 p.m.
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Everyone has lost serious amounts of money in both investments and the housing market. That's just the way it goes. We shouldn't offer special concessions for any specific group of investors. They should have to deal with the losses just like everyone else......
Apr 26, 2009 at 3:14 p.m.
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Shopierehuh: Not funny. And who is "whining", anyway???
Apr 26, 2009 at 2:59 p.m.
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Some cheese would go well with the whine.
Apr 26, 2009 at 12:08 p.m.
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Bonds are usually very safe, but any investment portfolio should be diversified (across not just industries and companies, but management firms as well -- as Madoff's clients learned the hard way). In fact one of the primary criticisms of 401(k) plans is that many companies encourage employees to invest in company stock, which leads most people, with inexperience in investing, to be overly concentrated in a single investment (as Bear Stearns employees learned the hard way). And finally of course most American families have the bulk of their "investment" in their home value, which almost everyone has learned the hard way isn't something you can count on other than in the very long run.
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The problem right now is so across the board, of course, that diversification hasn't really helped retirement funds, whether individually held or institutional.
Apr 26, 2009 at 9:08 a.m.
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Sad to see this happening. I have Aunt's and Uncle's in Janesville that are retired from GM and they put most of their retirement in GM stocks and bonds. They were very loyal GM people and as most thought in Janesville that GM was invincable. I feel sorry for them. They took a gamble and lost but it was their CHOICE. I myself used to get ridiculed for putting money in CD's and only getting half the interest or less of these higher risk investments but right about now nobody is ribbing me.
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