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Jeremy Warner

Jeremy Warner: Even the boss is sceptical about GM's rescue plan

Outlook: If bondholders think they are getting a raw deal, what about existing equity holders?

If even the chief executive of General Motors, Fritz Henderson, admits there is little chance of the auto giant's latest rescue plan working, then nobody else is going to give it much credibility either.

Mr Henderson's warning that it is "still more probable" that General Motors will end up in Chapter 11 bankruptcy proceedings than that the restructuring plans will get the go-ahead is in part brinkmanship. To get bondholders on side with the restructuring, he has to make them believe that, however painful the haircut they are being asked to take, the alternatives are a lot worse.

The $27bn of outstanding bonds are these days largely owned by vulture funds, who would have bought the debt at a tiny fraction of its face value. Even so, it's going to be quite a struggle convincing 90 per cent of these investors that swapping the bonds for an ongoing stake in the company's equity of just 10 per cent is the way to go.

Mr Henderson himself describes the 90 per cent hurdle as "a stern test". Indeed it is. Many bondholders think they are entitled to control. At the same time, the US government is being asked to swap half its outstanding loans of $15.4bn to General Motors for a 50 per cent stake, while unions are also being required to share in the pain by converting some of their healthcare rights into an equity stake of 39 per cent.

But if bondholders think they are getting a raw deal, what about existing equity holders, who under this plan end up with just 1 per cent of the outstanding stock? Bizarrely, GM shares rose more than 20 per cent on news of the plan yesterday, putting the value of the company at around $1bn.

This might not sound much for what was once the world's greatest auto company, but given what's just been proposed, it's astonishing the company is worth anything at all. Whatever the alternatives, it is hard to see Mr Henderson's plans getting the thumbs-up. Bankruptcy proceedings have long looked like the best way of sorting out the unviable mess that is General Motors, allowing something new and smaller to emerge from the rubble.