Future economists will look back on the slow death of General Motors and marvel at how the story evolved. Books will be written and perhaps even a movie made about the collapse of the greatest industry in America.

The latest chapter in this hallowed story will be completed before April 27th. That date appears to be the deadline for GM’s planned all-equity offering for bondholders.

GM currently has a total of about 27.5 billion dollars worth of debt that is held by bondholders. Unfortunately for them, they don’t have the money to pay off these debts as they mature.

The bond market is already discounting this fact in its pricing. Take for example the GM bond that matures on July 15th 2033 and pays 8.375% annually. GM issued $3 billion worth of this bond back in 2003 and it currently trades on the market for 10-cents on the dollar, or a annual yield of about 82%.  Who wouldn’t want an 82% return for nearly 30 years?

However you won’t get that yield because GM doesn’t have the money to pay you. If they can’t pay the bondholders, they go into default and then bankruptcy. So now they want to convince the holders of all their debt to swap their bonds for shares.

How many shares per bond? Nobody knows.

Is it a good idea? They really have no choice.

It will be interesting to see how this pans out. If GM goes through with this proposal and offers debt holders equity, what percentage of GM will they own? If the amount is too low, debtors will be inclined to push the company into bankruptcy in hopes that they can more of their money through liquidation of GM’s assets. Or perhaps the government will step in and declare a value for the bonds. Will it be 10-cents to the dollar? 20? 5?

Get your gambling visor on, some one’s going to make a killing/go broke.