Early today, GM offered an equity swap to its bondholders. From Bloomberg, GM Steps Up Job Cuts, Offers Shares to Bondholders:

General Motors Corp., working to stave off a June 1 U.S.-backed bankruptcy, stepped up dealer shutdowns and job cuts and offered equity to bondholders under a plan to reduce liabilities by $44 billion.

GM will shrink the number of dealers 42 percent to 3,600 and drop more union and salaried positions by the end of 2010, according to a regulatory filing today. Holders of $27.5 billion in bonds would receive 225 shares of stock for each $1,000 in principal.

…

GM said 90 percent of the bondholders need to accept the exchange offer to for the company to avoid bankruptcy.

225 shares for $1000 in principle? This would give the bondholders 10% of the company (current stock holders would be diluted to 1%). We didn’t have to wait long for the response: GM Bondholder Group Says Offer Isn’t ‘Reasonable’ (also Bloomberg):

General Motors Corp. bondholders find the automaker’s offer to exchange their $27 billion in debt for equity unreasonable and said they should be treated more equitably with labor unions.

“We believe the offer to be a blatant disregard of fairness for the bondholders who have funded this company and amounts to using taxpayer money to show political favoritism of one creditor over another,” the ad hoc committee of GM bondholders said today in a statement.

I still believe this is theater. The terms of an actual bankruptcy are not likely to be very favorable to bondholders.