How to Deal With GM's Bondholders?

If the comments on my GMAC bond entry earlier this morning are any indication, it's going to be harder than I think a lot of people anticipate to bail in GM's bondholders as part of any government bailout. Here's three:

fresnodan: I have a friend whose father-in-law owns GM bonds, and he simply can't see that it is possible for GM to go bankrupt. For him, any loss on the bonds seems ridiculous.

ken_g: Bankruptcy is the only way to deal with uncooperative bondholders.

anonymous: Why should GMAC and GM bondholders take a haircut but AIG counterparties and Bear Stearns, Citi, and Morgan Stanley bondholders not have to?
I am a GM bondholder, and I will certainly not agree to any haircut. If it were not for us having lent GM money, then GM would need even more federal money to avoid bankruptcy.

I suspect this is going to be a really big problem. Back in 1981, when Chrysler's creditors were bailed in as part of the last big auto-industry bailout, they were much fewer in number and were generally much more sophisticated investors than a large chunk of the people holding GM bonds today.

Now, there's a large contingent of GM bondholders who don't mark to market and therefore won't jump at any opportunity to get, say, 50 cents on the dollar for their paper. They want what they're owed, and the easiest legal way of preventing them from getting it is bankruptcy.

Yes, there can be a tender offer with things called "exit consents" which make it harder for holdouts to sue for the money they're owed. But the results of the GMAC tender offer would seem to imply that getting a critical mass of bondholders to agree to those exit consents would be tough. And in any case such an offer wouldn't extinguish the holdouts' debt, and those holdouts would certainly be a noisy thorn in GM's side for many years to come.

GM doesn't have a group of bank lenders it can get round a table and negotiate with: it has a bunch of very angry bondholders who do not, under any circumstances, want to take any haircut at all. And I fail to see how any car czar is going to be able to force them into taking one, short of putting together a pre-packaged bankruptcy.