May 28th, 2009
11:40 AM ET

Financial Dispatch: GM strikes deal with bondholders

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Andrew Torgan
CNN Financial News Producer

The Treasury Department and a committee of major bondholders at General Motors have reached a deal that could give creditors a larger stake in GM than previously offered - as long as they agree not to fight the government's plans for a quick bankruptcy at GM.

The agreement, revealed in a SEC filing by GM early today, would essentially give the bondholders 10% of the company but also give them the rights to buy an additional 15% of the company's stock at a low price.

The deal is unlikely to allow GM to avoid bankruptcy, however.

In fact, the new offer is structured so that the assets of GM that would remain in bankruptcy would receive a 10% stake in a "new GM" that would be used to pay bondholders. The “old GM” would also technically receive the right to buy the 15% stake in the new company that emerges from bankruptcy.

Auto-parts maker files for bankruptcy

With Chrysler already in bankruptcy and General Motors still teetering on the brink, we’re seeing the ripple effect in the auto-parts industry. Visteon filed for bankruptcy protection yesterday after revenue fell amid a global slump in vehicle sales.

The former unit of Ford said U.S. parts sales plunged 37% through April, with sales at Ford - Visteon’s largest customer - dropping 40%.

The auto-parts industry employs more workers in the United States than the automakers - about 500,000 of them. In addition, most of the big suppliers have contracts with multiple automakers. And since most make unique parts for the automakers, a closing can rapidly halt operations at auto plants.

Mixed news on the jobs front

New applications for jobless benefits dropped last week, a sign that companies are cutting fewer workers, but the number of unemployed workers continuing to get benefits climbed to a new record high.

First-time claims for unemployment insurance fell by 13,000 to 623,000 from the previous week’s revised figure of 636,000.

But the number of people receiving benefits for one week or more rose by 110,000 to just under 6.8 million. That’s the highest number on records dating back to 1967.

Durable Goods orders jump

Also on the economic front, demand for big-ticket manufactured items like cars and refrigerators soared by the largest amount in 16 months in April, the second increase in the past three months.

Orders for durable goods increased by 1.9 percent in April, more than four times the 0.4 percent increase that had been expected.

But the government also revised its estimate for new orders in March to show a drop of 2.1 percent, a much bigger fall than the 0.8 percent decline previously reported.

New home sales edge up

Sales of newly constructed homes edged up slightly in April from a downwardly revised reading the prior month.

The Commerce Department says new home sales ticked up 0.3% last month to a seasonally adjusted annual rate of 352,000. But that’s still 34% below the same month a year ago.

One bright spot: The median sales price of new homes rose to $209,700 in April, up nearly 4%.

Gas prices up again

Gas prices rose 1.5-cents to $2.449 overnight, the 30th straight increase

In the last 30 days, the average price of gas has increased 40.1 cents, or 19.5 percent.

But gas is still well below where it was one year ago today ($3.944) as well as the all-time high of $4.114 that AAA reported on July 17, 2008.

The highest gas prices are in Alaska ($2.739). The cheapest gas prices are in South Carolina ($2.271).

Filed under: 360° Radar • Andrew Torgan • auto bailout • Economy • Finance • Housing Market • Unemployment
soundoff (One Response)
  1. Felix

    May be Exxon should pour in some money to save GM. If and outside company buy GM like Chrysler then that money go back over sea. This does not help our economy. Exxon should want to because they get the money back and GM can build better cars and it stay in America.

    May 28, 2009 at 3:11 pm |