I guess that kind of stuff only works with big business and government. There's no way I could get out of my debt by offering a mere pittance to whom I owe.

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Carl, many think that GM bondholders are these evil hedge funds and big corporations, read this story on WSJ who else owns them.


By LARRY LIGHT

Five years ago, Marjorie Holden paid about $40,000 for some General Motors Corp. bonds, which generate tidy interest ranging from 7.4% to 8.4%. Now the bonds are worth just under $10,000.

The 81-year-old New York widow is watching the negotiations among big, powerful bondholders, the government and the auto unions, which could end up in a settlement leaving her worse off.

"The bondholders are not all rich," says the retired teacher. "I need to conserve my assets."

Thousands of mom-and-pop investors like Ms. Holden own GM bonds, but have seen their value fall along with the fortunes of the auto maker. Just this week GM brought a much tougher offer to bondholders -- to swap their bonds for a small slice of the company's stock.

In talks with GM, a committee of big institutional bond investors has been resisting a settlement. Previously, the company offered a sweeter package that included cash, new bonds and a lot more equity. The latest offer has small bondholders fuming and adds to their feeling of helplessness because the outcome is beyond their control.

"I'm not doing the negotiating here, but why is the company doing this to me?" says Bob Pandolfi, 68, a retired stockbroker from Staten Island, N.Y., who has seen his $50,000 investment in GM bonds in 1999 plunge to one-tenth of that.

About 20% of the GM bondholders are individual investors. Some like Ms. Holden or Mr. Pandolfi bought GM bonds when the auto maker's prospects were much better. This icon of corporate America defined safety to many of them. The bulk of the unsecured bonds, which have a face value of $29 billion, are worth about 15 cents on the dollar.

Other individual GM bond investors are playing the vulture game with the Wall Street pros, trying to benefit from temporary increases in bond prices. That is easier to do with GM because the company has "retail bonds," which have a face value of only $25, and thus are more affordable and liquid than regular bonds, whose face value is $1,000. The GM retail bonds now trade for $2 to $4 each.

David Berger, 36, a Manhattan commercial real-estate broker, says he has made money over the past few months trading in and out of these securities. In March, he had a stake totaling $500,000. Because he has bought so low, they offer a 80% yield. "It's nice to ride the wave," he says.

The situation is grimmer for individual investors who own GM common stock. GM's shares closed at $2.04 Thursday, down from $83 a decade ago and its recent high of $42 in October 2007. If GM ends up in Chapter 11 bankruptcy-court protection, odds are the common stock will be wiped out. But if it can reorganize out of court, lightening its debt load via some kind of exchange offer, the stock likely will rise.

Some small stockholders stay with their shares, but others got in lately and hope to make a profit from even a small bounce in GM's stock. Amid relative optimism about GM, the stock rose from $1.45 a share on March 6 to $3.62 on March 27. It then dipped after the ouster of GM's chief executive, Rick Wagoner.

Dorothy Donovan, 77, who owns a catering business in Farmingdale, Mich., last year bought 200 shares, and is standing pat, thinking that "eventually, GM will turn around."

Many bondholders also are hanging on in hopes that -- some way, somehow -- their losses will eventually be eased via an exchange offer for their bonds.
But in the political and economic maelstrom swirling around the car company, they may be disappointed. The bondholders could be forced to swallow deeper losses than the market has delivered. Moreover, if GM files for bankruptcy protection, it almost surely will cease paying interest. Plus, in a bankruptcy, bondholders will have to wait a long time for a settlement. The typical bankruptcy lasts 18 months.

In a few bankruptcies, bondholders emerge ahead. One example is Mirant Corp., a power-generating firm whose fortunes improved while it was in Chapter 11. Mirant gave bondholders a settlement worth more than the bonds had been worth.

However, that's the exception. GM's fortunes are dwindling. The unsecured bondholders -- their paper isn't backed by collateral -- rank lower on the food chain than do other creditors.

"They'll get what's left over, and the pie is shrinking along with GM's sales," says Peter Chapman, president of Bankruptcy Creditors Service Inc., a research house.

Harley VanDeloo, 69, a retired high-tech marketing representative in Thousand Oaks, Calif., bought $20,000 in GM bonds a year ago, now valued at less than $3,000. Says Mr. VanDeloo, "I thought GM was too big to fail."

Write to Larry Light at larry.light@wsj.com

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Here's the link to the story, which includes pictures


http://online.wsj.com/article/SB123940497568709785.html

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stocks, bonds, etc are all just legalized gambling.... so yeah, sometimes you lose. sucks for the people who lost a lot of money, but it takes losers to make winners, so expecting to always win is just ridiculous

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Sea Urchin:

There may be lots of small holders out there. But the bulk of the value of these bonds is with large institutions, I guarantee you.

And they are the ones who are, in effect, bargaining for the rest of the bondholders.

What gets me here is that Treasury is calling the shots in on the 'negotiation'. Treasury has other motives than keeping GM alive. They shouldn't be calling the shots.

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"What gets me here is that Treasury is calling the shots in on the 'negotiation'. Treasury has other motives than keeping GM alive. They shouldn't be calling the shots."-------------But Treasury owns a chunk of GM, so they as co-owners can do what they want, fire CEO, take company in CH 11 or whatever. GM knew what was coming when they said YES to free money.

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The quintessential American disease, instant gratification. Remember SHOCK & AWE? That was a classic example of instant gratification, see how well that worked for America?

There are people many times smarter than any of the hacks that post here (myself included), working on this. They're headed in the right direction. We're about 15 days into the 60 days they were given to explore every possibility.

Reorganizing a global conglomerate not as simple as flushing your LOO to rid yourself of your excrement.

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I agree. None the less I think bankruptcy will be the final decision at the end of 60 days.

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Mr.Oak,

actually GM has about 45 days into the 60 days they were given.(deadline is end of May)

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Carbot: There must be a language barrier here. I said that they were 15 days into the 60 day grace period, which leaves them 45 days to work on this.

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Mr. Oak, how else can an insolvent business that is out of touch with consumers can reorganize? Endless public support or bankruptcy, one or the other.

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Urchin, I don't disagree with Chap. 11. I do agree that they should do it in an organized / pre-arranged manner. Take a look at Delphi, its been 2 years since they got slammed into bankruptcy, no light at the end of the tunnel.

Delphi is not even half the size of GM.

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GM has three problems:
1) Bond holders.
2) Dealer contracts.
3) Union contracts.

Now that GM is Government Motors, #1 and #2 will do what government tells them to do. Unless you think 80 year old retired teacher from socialist Blue state will take arms against federal government the way Southern states did in 1861. #3 is a problem for a private company, GM, but it is an asset for a government owned company so #3 is not a problem for Government Motors. It will be interesting to see how government will manage GM. Will they reduce number of brands? Will they split cars and trucks into separate companies? Will they give it to Greenies to manage?

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I think u are wrong. Ask Wagoner.

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The bondholders can afford to call Obama's bluff because they have nothing to lose. For that matter, neither did Wagoner who collected his millions and had an irreparable reputation when he was shown the door.

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This article list pretty good reasons why some large bond holders and still holding out.

http://www.autoblog.com/2009/04/03/gm-and-aig-why-bondholders-might-want-bankruptcy/

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