The Wall Street Journal is reporting that G.M.’s Cheif Financial Officer said today that the company won’t be making its June 1 $1 billion debt payment. The statement is unclear as to whether G.M. isn’t going to make the payment because it believes there will already be an alternative arrangement — either a debt-for-equity swap or bankruptcy, the latter of which CFO Young calls “probable” — in place, or whether they are simply saying that, yes, they’re going to default because they can’t pay. It’s so unclear, in fact, that the WSJ headline is “GM Plans to Skip $1 Billion Debt Payment,” and, skipping being the recognized economic term that it is, the article is getting some pretty amusing responses in the comments.
So I contacted G.M., and here’s their statement:
A successful bond exchange is an essential element of our out of court restructuring efforts, and we are working aggressively to launch an exchange. That exchange could still be in process on June 1. In which case, we would not expect to make the June 1st Series D bond payment. Should we be required to finish our restructuring within the court process, the June 1 bond payment would be unlikely as well.
It sounds like G.M. is trying to acknowledge both reality — they’re not going to make this payment — and fiction — but they could if they wanted to. The benefit of the former is that a G.M. default has been talked about for a long time, so acknowledging the inevitable isn’t a bad strategy. The benefit of the latter is that it sort of makes it look like G.M. is getting pushed into default by the government or its creditors — which might play to some (though not perhaps the best and brightest) as this being Not G.M.’s Fault.
But it is. Maybe the default will scare some sense into its large bondholders, and the debt-for-equity swap will happen. Really, though, this makes bankruptcy seem very, very likely.
SATURN SMITH 