GM bondholders need equal UAW sacrifice: analyst

NEW YORK (Reuters) - General Motors Corp unsecured bonds are held mainly by pension and mutual funds that need union workers to share the pain equally in the automaker's restructuring, an analyst said on Monday.

GM has been pledged $13.4 billion of government loans to support its turnaround efforts. Bondholders have submitted a proposal for a debt swap to equity to the automaker that would help GM meet government-ordered debt reduction targets.

The government ordered GM to come up with a plan to cut its roughly $28 billion of unsecured debt by two-thirds, and ordered the United Auto Workers union to take half of a pledged $20.4 billion payment to a union retiree trust fund in stock.

"The bondholders have to be very guarded about being used as the swing factor in the restructuring," said Glenn Reynolds, CEO and founder of CreditSights research firm in New York. "It has to be equal with the UAW's contributions."

The bondholders need to make sure they get an "equity play" in the exchange that will require a significant UAW contribution on the balance sheet and cost front, he said.

Reynolds described the bondholders as mostly pension funds, mutual funds, insurance policy holders, retirement savings plans and other investors, many of whom helped to fund GM's pensions. Wall Street or vulture investors make up a distinct minority, he said.

"The sense by some that there has been an absence of fair play for bondholders clearly has been a problem to date," he said. "In the end, it may play to the pro-Chapter 11 crowd."

Reynolds' remarks follow a report from JPMorgan last week in which it said GM bondholders likely would receive about 50 cents on the dollar, a relatively high amount given current bond trading levels, if the government provides some support.

The JPMorgan note also said bondholders were not likely to participate in the exchange unless they received about the same treatment as the UAW retiree health care trust. The government could provide 10 cents on the dollar in cash and guarantee 40 cents on the dollar in new notes to accomplish that, it said.

GM likely would become sustainable in 2010 with the union and bondholder concessions at that level, JPMorgan said.

Reynolds, who previously served as head of global corporate bond research at Deutsche Bank and was a managing director of fixed-income research at Lehman Brothers, said the union had not been unfairly singled out in the process.

Shareholders have been wiped out essentially, the majority of bondholders will be permanently and materially impaired and salaried workers and retirees have been "slaughtered," he said. Suppliers also have taken massive losses, he added.

"For bondholders, they will not get a fresh bite at the apple in a few years -- unlike the UAW via collective bargaining," Reynolds said. "The bondholders will crystallize their losses."

(Editing by Christian Wiessner)