Pimco, Franklin GM debt value may fall 75% in aid bid

Updated: Nov 27 2008, 08:50am hrs
General Motors Corp may ask unsecured debt holders Franklin Resources Inc and Pimco Advisors LP to accept as much as two-thirds less than the face value of their bonds as the automaker cuts debt in a bid to win US government aid.

GM bonds trade for 13 to 22 cents on the dollar and the company may only offer a slight premium over that, estimated Pete Hastings, a fixed income analyst at Morgan Keegan & Co. in Memphis. GM needs to pare its debt below the current $43 billion even if it gets the $12 billion in government loans sought, people familiar with the matter said earlier this week.

Its not a pretty choice, but beggars cannot be choosers, Hastings said. Layering federal debt help on top of the existing debt wouldnt leave us with a viable entity. Lets hope that all constituencies contribute with an equal amount of pain.

Chief Executive Officer Rick Wagoner is under a Dec. 2 deadline set by House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid to show how hell reshape operations as a condition of a $25 billion industry rescue. Congress may vote on the package on Dec. 8.

The largest US automaker also may ask to delay a $7 billion payment to a union retiree health fund, drop more brands and rework an accord with GMAC LLC to prove it can survive and repay the government, the people familiar with the plans said. GMs board will meet Nov. 30 and Dec. 1 to review the plan before it is released to Congress and the public.

Bloomberg