No Runny Eggs

(H/T – Darleen Glick via Allahpundit)

No, it won’t be the American taxpayers that will profit from the ongoing saga that is Government Motors. The Washington Times notes that the big winner of last week’s IPO of GM will be the United Auto Workers, specifically their Retiree Medical Benefit Trust Fund (aka the VEBA that all three domestically-owned auto makers shifted their retiree health costs to). The numbers quoted in that story of $3.4 billion from the IPO and a “break-even sale” price of $36 aren’t quite accurate (they’re both high, the latter far more so), so I’ll walk you through the math:

• Old GM had, when it went into bankruptcy, $20.56 billion in unsecured liabilities owed to the VEBA.
• Exiting bankruptcy, Government Motors gave the VEBA:
  • 262.5 million common-stock shares
  • $6.5 billion in senior perpetual preferred stock with a 9% dividend and a 5 1/2-year restriction on buy-back by GM, worth a minimum of $9.72 billion if bought back at the earliest possible date.
  • A $2.5 billion secured note with a 9% annual interest rate and a maturation date in 2017, payable in three $1.4 billion chunks in 2013, 2015 and 2017.
• VEBA already received $3.65 billion in cash as follows:
  • $0.73 billion in dividends on the preferred stock.
  • $2.92 billion on the stock sold (89 million shares at $32.7525/share – the underwriters took $0.2475/share in underwriting discounts and commissions).
• Assuming GM survives through the middle of 2017 to pay off that note and buys back the preferred stock at the end of 2014 as soon as it can, it will get an additional $13.19 billion in cash from:
  • The remaining $8.99 billion in future dividends on and buy-back of the preferred stock.
  • $4.2 billion from the principal and interest on that $2.5 billion note.

Assuming the underwriters do exercise their over-allotment option to buy another 13.35 million shares at the discounted IPO price (which would get the VEBA another $437 million), that would leave $3.28 billion to come from the remaining 160.15 million shares. That means the UAW would be made whole if they net a fraction $20.48/share for their remaining holdings. Even if JP Morgan and company don’t come riding in to buy the additional shares now, the UAW will need to only net a fraction more than $21.44/share to be made whole. Everything else is pure profit, or at least a further subsidy of UAW Motors (nee Chrysler).

To put it another way, if they dumped their shares now, they would get a total of $22.12 billion in cash from Government Motors, compared to the $20.56 billion liability that Old GM had going into bankruptcy.

Meanwhile, the remaining unsecured creditors of old GM, mostly the bondholders, will be lucky to get 23 cents on the dollar once the liquidation of GM is complete and they get their pro-rated portions of the 150 million-180 million shares in Government Motors.