The new General Motors ( GM) viability plan looks like a tough sell -- not just to bondholders, but also to the public. Bondholders would own about 10% of the company after swapping $1,000 worth of debt for 225 shares, which would then be reduced to two shares in the new General Motors in a 1-for-100 reverse stock split. The federal government would ante up $9 billion more this year than GM initially sought, taking the total to $27 billion. By one interpretation, shareholders are winners, in a sense, because the plan envisions that they would hold 1% of the shares in the new GM. That means existing shares would not go to zero, which is what normally happens in a bankruptcy. Still, Standard & Poor's analyst Efraim Levy reiterated his sell recommendation on GM shares on Monday, noting that, even though shareholders may get more than zero, it still isn't much. "Whether there is a bankruptcy filing or not, we see it as lose-lose for shareholders via dilution from equity issuance or loss of value via a filing," Levy wrote in a report. GM shares rose about 21% Monday to close at $2.04, a move that KDP Investment Advisors analyst Kip Penniman considers outlandish. In a report, he wrote: "Absurdly enough, equity holders are celebrating their future 1% ownership stake in the company." For bondholders, "terms of the offer are even less attractive than we envisioned on several fronts," Penniman writes. He said the bondholders' 10% ownership stake would represent a return of about 5 cents on the dollar, less than the bonds trade for today. By contrast, he said, GM would still fund the United Auto Workers' retiree health care trust half with cash and half with debt.
Also, he said, the requirement for a 90% tender "indicates to us that the offer is designed to fail," adding "In our opinion, there is no chance that GM will get anywhere near that participation rate." Meanwhile, the plan envisions more taxpayer money for GM. The company has so far received $15.4 billion from the Troubled Asset Relief Program and has said it will need a total of $18 billion from the TARP by year end. The new 2009 total of $27 billion from TARP includes $5.8 billion more for operating cash flow, needed because enhanced downsizing would deteriorate North American operational cash flow, said CFO Ray Young, on a conference call with analysts. Also, GM anticipates having to pay off its $4.5 billion revolving credit facility this year. At the same time, GM is asking for $2 billion it won't get from the Department of Energy, which is delaying a move to lend automakers money to bolster fuel efficiency. While GM was the clear winner of the day, other carmakers were mixed. Ford ( F) was up 2.2% to $5.11, but Toyota ( TM) was down 2.9% to $78.59. Honda ( HMC) slipped 2.3% to $27.65.