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Is the United Auto Workers union getting a better deal than bondholders in the impending bankruptcy of

General Motors



Key bondholders obviously think so. Even as they announced their agreement to a deal with the Treasury on Thursday, they noted, in a public statement, that they "remain troubled by preferential treatment" for the Voluntary Employee Beneficiary Association, a health care trust fund for retirees administered by the union.

Asked to respond to bondholder complaints at a news conference Friday, UAW President Ron Gettelfinger said the union "is not in any kind of a shouting match or a pushback with the bondholders."

"Every stakeholder involved in this process has done the best that they possibly could," he said, noting that as for the UAW, "We are negotiators and that's what we do," adding, "The men and women of the UAW were on third base when this process started in regards to making concessions to help this company. No other stakeholder at that time was in the ballpark."

His point, it seemed, was that the UAW was more willing to negotiate, and perhaps more skilled at doing so.

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On Thursday, in a letter to members of Congress, UAW Legislative Director Alan Reuther wrote that comparing the two groups' claims is not necessarily an apples-to-apples comparison.

Reuter said retirees, promised health care years ago, have no place else to go, while bondholders are investors with options as well as diversified portfolios.

"The retirees gave a lifetime of service to GM in return for the promise that they would receive health care coverage during their retirement years," he wrote. "(Now), they will be forced to live with reduced access to health care and/or a lower standard of living." By contrast, he said, "Most bondholders are investors who can spread any losses across a broad portfolio."

Gettelfinger said Friday that retirees are facing 25% reductions in their health care benefits despite having been given guarantees, but he also suggested that without union sacrifice and government invention, GM might not survive. "This was a matter of salvation, salvaging as much as we possibly could for our retirees," he said. Specific reductions will be determined by VEBA trustees, not by the UAW, he said.

In the deal crafted by the U.S. Treasury, the Treasury would hold 72.5% of the stock in the new GM, as well as $8 billion in debt and $2.5 billion in preferred stock paying 9% interest, in return for nearly $50 billion in funding before and during bankruptcy.

In return for $20 billion of GM obligations, the VEBA would receive 17.5% of the new company, as well as a $2.5 billion note and $6.5 billion in preferred stock paying 9% interest. The VEBA will also have a seat on the board of directors.

Meanwhile, in return for $27 billion in GM debt, the bondholders would get 10% of the stock as well as warrants to purchase up to 15% more.

Setting aside the argument that a moral imperative can be assigned with health care claims, it is understandable that bondholders might not be satisfied by the contrast in the treatment of the two parties.

In a report Friday, Credit Sights analyst Glenn Reynolds wrote that the bondholders receive less equity than the VEBA, as well as zero in notes and zero in preferred stock. Reynolds called the bondholders' deal a politically-motivated "cram-down jam-job being designed by the enormously powerful Auto Task Force," which he said is eyeing labor support in 2010 Senate elections in swing states such as Missouri and Ohio.