The withdrawal of Pacific Investment Management Co. from a group representing General Motors Corp. bondholders is a "serious blow" to the automaker's efforts to negotiate a debt-for-equity exchange to meet requirements of its federal loan, according to an investment advisory firm.
In a research note Thursday, KDP Investment Advisors Inc. said Pimco's resignation from a creditor committee representing bondholders will hurt GM's effort to reduce its unsecured debt by two-thirds in order to continue receiving installments of a $13.4 billion bridge loan.
The bailout requires GM to submit a plan for long-term viability, and the loan may be called back if the government hasn't determined by March 31 that the plan can succeed.
Without Pimco's participation, KDP said it would be difficult for GM to meet requirements of a bond exchange needed to show the government it can remain viable.
"On its own, we don't believe GM can gather enough bondholders to voluntarily submit to principal haircuts and holdouts will pose a major challenge to the company's efforts," said KDP in its note.
GM Chief Operating Officer Fritz Henderson said Tuesday night that the company has done preliminary work with bondholders, and a deal with them doesn't have to be finalized at the time the company turns in its viability plan to the government on Feb. 17.
"That piece of it, actually if you read through the document, we don't have to launch the bond exchange until we get into closer to the end of March," Henderson said. "So you have time. It's not like everything is going to be done and buttoned up. But we have to have preliminary plans by that time."
Calls to Pimco were not returned Thursday evening.
According to KDP, Pimco said that bondholders were not receiving appropriate treatment and that "Pimco's clients would be better served if the firm removed itself from the committee."
Committee members are not allowed to trade bonds freely since they are privy to inside information regarding GM's financial performance. Pimco's withdrawal allows it to trade freely.
Precedent for Pimco's departure comes from Pimco's decision not to participate in the debt-for-equity exchange at GM's financial arm, GMAC Financial Services last month. The government granted GMAC bank holding status to GMAC two days before the exchange expired.
According to KDP, Pimco could be holding out, "betting that the government will provide GM the funds it needs even if it fails to reduce debt by two-thirds."