GM bondholders glimpse carrot behind the stick

By Kevin Krolicki - Analysis

DETROIT (Reuters) - In a sudden turnaround of sentiment, General Motors Corp bondholders are focusing more on what they have to gain from the automaker's restructuring than what they stand to lose.

That marks a sharp change in tone from months of complaints that the Obama administration was bullying creditors in GM's bankruptcy-in-the-making because it favored the automaker's unionized workers.

Advisers to a group of GM institutional bond investors on Friday issued an appeal to other bondholders to join in supporting terms of a deal that could give them 25 percent of a post-bankruptcy company in exchange for $27 billion in debt.

The appeal is straightforward: if GM is pushed through a fast-dash bankruptcy that slashes debt and costs, it only has to emerge as almost as valuable as its smaller rival Ford Motor Co for bondholders to start making money.

Ahead of a Saturday deadline, more GM bondholders were ready to support the deal with expectations growing that it could win over a majority share of the bond debt.

Elliott Management, a $13-billion hedge fund and a significant GM bond position, will vote for the new deal.

"Based on all the facts and circumstances Elliott Management has chosen to support the current GM proposal to bondholders," the fund said in a statement when contacted.

Elliott also served on the committee of Chrysler's secured creditors and had supported a government-brokered plan for that restructuring before Chrysler was put into bankruptcy.