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A letter to GM bondholders

My dearest Motors Liquidation Company (formerly General Motors Corporation) bondholders, just because General Motors Company (the “new” GM) went public today, you will not immediately be receiving any new GM shares in exchange for your bonds. Your bonds are not from the new GM … they are from a previous company which is still in bankruptcy proceedings.

Many of the Motors Liquidation Company bond claims are being administered by Wilmington Trust; other outstanding bonds may be adminsistered by other trustees.

According to Wilmington Trust:

Shortly after GM filed for bankruptcy, it sold substantially all of its assets to a newly formed company (NewCo) pursuant to Bankruptcy Court authorization. In exchange for the sale of its assets, GM received, among other compensation, 50 million shares of the common stock of NewCo and warrants to acquire 90.9 million additional shares of NewCo common stock. Following this sale, GM changed its name to “Motors Liquidation Company” and NewCo changed its name to “General Motors Company.” As a result of the sale transaction and the subsequent name changes, bondholders of former “General Motors Corporation” are now bondholders of Motors Liquidation Company, whose primary assets are the stock and warrants in General Motors Company received in the sale transaction.

Bondholders of Motors Liquidation Company can generally expect to receive common stock and warrants in General Motors Company on account of their bonds, rather than cash, as the stock and warrants represent substantially all of the remaining assets of Motors Liquidation Company. The number of shares of common stock and warrants each bondholder will receive is currently unknown. This uncertainty is due to the fact that the number of holders of allowed claims against Motors Liquidation Company, and the size of such allowed claims, is currently unknown. On November 29, 2009, all holders of claims against Motors Liquidation Company were required to file formal “proofs of claim” as a prerequisite to receiving a share of the Motors Liquidation Company estate. A large number of potential claimants filed such proofs of claim, and Motors Liquidation Company is currently in the process of determining the proper number and amount of allowed claims.

Ultimately, the distribution of stock and warrants to claimholders (including bondholders) will be performed pursuant to a plan of liquidation that will be subject to Bankruptcy Court review and approval. The plan of liquidation will serve as the instructions for such distributions on a go forward basis. On August 31, 2010, Motors Liquidation Company filed a plan of liquidation and disclosure statement with the Bankruptcy Court. The proposed treatment for holders of general unsecured claims, including bondholders, is described in Section 4.3 of the plan. The plan has not been approved by the Bankruptcy Court. On October 21, 2010, the Bankruptcy Court conditionally approved the disclosure statement pending certain revisions and additional disclosures. To date, however, Motors Liquidation Company has not filed a revised version of the disclosure statement and final Bankruptcy Court approval is still pending. Copies of the plan and disclosure statement are available on the section of this website entitled “Plan and Disclosure Statement.” Wilmington Trust Company will provide additional information related to the plan of liquidation when it becomes available.

via Wilmington Trust | General Motors Bondholders | Home.

According to Motors Liquidation Company’s Investor FAQ:

When will unsecured bondholders be provided with their equity in the new GM?

As part of the consideration for the acquisition of substantially all of the assets of the old General Motors Corporation, 10% equity in the new GM, as well as warrants for an additional 15%, will be provided to Motors Liquidation Company which is still in Chapter 11. Distribution of this equity to unsecured bondholders and other claim holders will be determined through the court process and will not occur until a plan of reorganization is submitted, accepted and implemented. It is too early to tell how long this may take.


This is public information. This is reality. So please don’t argue with me when I tell you that you will not be immediately receiving shares in the new GM in exchange for your old bonds; and that you definitely will not be getting 50 shares of new GM stock (current value $1709.50) for every $1000 bond which you are currently holding, especially when you take into consideration that the current market price for said bonds is about 35-cents on the dollar. This means that people who know a whole lot more than you do feel that the recovery on the bonds through the bankruptcy process will be substantially less than face value, not substantially more.

I don’t know where you got that number, but it has absolutely no basis in reality.

I’m sorry that you made a bad investment and that you will end up losing a substantial portion of your money, but that’s no reason for you to take out your frustrations on me.

I didn’t cause GM to fail; GM’s business practices over the decades prior to their bankruptcy, combined with the poor economy (and associated job losses) brought on by (primarily) the collapse of the housing bubble and freezing of the credit markets carry that responsibility.

Thank you.

3 Comments on "A letter to GM bondholders"

  1. Sucks to be a gm bondholder. And gm management, the broader economy, and the banks whose synthetic debt instruments fueled the bubble and collapse deserve the blame. However, if your firm packaged and sold said debt instruments and/or advised clients to purchase gm bonds, your request to “don’t blame me” rings rather hollow.

    Just sayin’.

    • Perhaps I should actually say, “Dear brokers and financial advisors whose clients are Motors Liquidation Company (formerly General Motors Corporation) bondholders …”

      And believe me … while the economic collapse hastened GM’s collapse, it didn’t cause it. GM hadn’t turned a profit since 2004, and pretty much refused to do anything to turn their business around prior to their filing last year. Personally, I think anyone who bought GM bonds in the past few years should have known it was coming.

  2. One need look no further than Ford to realize it was management’s ineptitude that did GM in. Buying GM bonds or worse yet, stock, was a lousy idea, but a lot of investors hire an advisor because they don’t know the good ideas from the bad ones.

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