Bartleby the Bondholder

So the question came down to the GM bondholders today: would you like one of those tasty crap sandwiches that the government and its junior partners in the UAW offered Chrysler?

They would prefer not to.

General Motors said Wednesday that not enough bondholders agreed to an exchange offer, which expired at midnight Tuesday, to make the deal go through. GM's board of directors will meet shortly to discuss the next step.

The automaker was attempting to persuade bondholders to trade in $27.2 billion in unsecured public debt notes in exchange for a 10% stake in the restructured automaker. GM needed 90% of bondholders to agree to the plan. On Wednesday, the automaker said the amount of notes turned in were "substantially less than the amount required by GM to satisfy the debt reduction requirement" set forth by the U.S. Treasury.

The bondholders are hoping that if GM goes into bankruptcy, the claims will be adjudicated as they are typically in bankruptcy proceedings, which might provide a better result than taking a 10% stake in an operation that may be buying its stock certificate paper from Kimberly-Clark.

It's going to be plenty interesting to watch how this particular minuet plays out over the next few days. The unspoken subtext here is that in some respects this battle is union vs. union, since the UAW was hoping to make out on the transaction, while many of the institutional bondholders are apparently pension funds for public employee unions, especially teachers' unions in Michigan. If I were Barack Obama, I wouldn't want to have to referee that fight.