GM may still need to file for bankruptcy in order to achieve the restructuring it needs to survive, says a Deutsche Bank automotive analyst.
Rod Lache, in a speech to the Society of Automotive Analysts, said that GM holds too much debt and won't get enough concessions from bondholders to conduct the kind of restructuring it needs. Only a bankruptcy could free GM to do what is required to survive in the long term, he said. Bondholders currently hold about 36 billion US dollars in GM debt.
"The probability is greater than not that there will be bankruptcy," Lache told the crowd.
Lache explained that GMAC, half of which is owned by GM, tried to swap most of its debt from bondholder's for equity as part of a deal for a government bailout which it received. But bondholders held out and didn't turn in as many bonds as had been sought by GMAC. As a result GM is still heavily burdened by debt with 60 billion US on the books and another 22 billion in government bailout loans from the US and Canadian governments. Lache thinks that GM cannot get all of its bondholders to agree to the concessions it needs in order to go on without a bankruptcy.
GM CEO Rick Wagoner still believes he can get that debt down by trying to convince bondholders to swap debt for equity in GM. But he conceded that it was a matter outside of GM's control. Wagoner, humbly, doesn't rule out bankruptcy but still says the chances of GM surviving are "very high".
I think GM needs to think carefully about its next few steps, because the next few months will be critical and the concessions the U.S. government demanded of them despite being harsh are fair and need to be done. So i think bond holders should remove their heads from their @$$es and do whats right.