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GM faces bankruptcy as bondholder offer fails
(Agencies)
Updated: 2009-05-27 21:50

GM says bondholder offer fails; bankruptcy likely

DETROIT -- A General Motors Corp. bankruptcy filing seemed inevitable after a rebellion by its bondholders forced it to withdraw on Wednesday a plan to swap bond debt for company stock.

GM faces bankruptcy as bondholder offer fails
In this April 27, 2009 file photo, General Motors President and CEO Fritz Henderson listens to a conference call in question regarding the company's viability plan in Detroit. [Agencies]
GM has until Monday to complete a government-ordered restructuring that includes debt reduction, labor cost cuts and plant closures. But a bankruptcy reorganization is likely after the company said its offer to exchange US$27 billion in unsecured debt for 10 percent of the company's stock had failed.

GM has received US$19.4 billion in federal loans. The Monday deadline was set by the government and includes debt reduction, labor cost cuts and plant closures.

The automaker said its board will meet to decide its next step.

"The principal amount of notes tendered was substantially less than the amount required by GM to satisfy the debt reduction requirement under its loan agreements with the US Department of the Treasury," GM said in a statement issued Wednesday.

The Obama administration has said it would only provide more funds if 90 percent of the bondholders, as well as unionized workers, agreed to concessions that substantially reduced GM's costs.

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GM also said it canceled meetings set for Wednesday with holders of notes that were not sold in US dollars. The statement said the meetings were to discuss amendments to the debt-for-equity offers, but it did not specify what the amendments were.

There was a small hope Tuesday that GM could avoid a bankruptcy filing when the United Auto Workers union disclosed that it would take a 20 percent stake in GM -- down from the original plan of 39 percent. That seemingly freed 19 percent of the Detroit-based company's shares to sweeten the pot for its recalcitrant bondholders.

But because the bondholder deal did not go through, the equity freed by the UAW deal now apparently will go to the US government, which may have to commit billions more for GM's restructuring in court.

The government's stake in the company originally was to be 50 percent, according to GM's regulatory filings. But it now could be as high as 69 percent. The Canadian government also could get equity for up to US$8 billion in aid for the automaker.

Such an arrangement would leave bondholders back where they started -- and a Chapter 11 filing all but certain. The deadline for GM's bondholders to tender their debt was midnight Tuesday.

Meanwhile, crosstown rival Chrysler LLC heads to court Wednesday to ask a bankruptcy judge for permission to sell the bulk of its assets to a group headed by Italy's Fiat Group SpA in hopes of saving itself from liquidation.

Attorneys for Chrysler maintain that the Fiat deal is the company's only hope to avoid being sold piece by piece, but car dealers, bondholders, former employees and others are protesting what they see as the government speeding Chrysler through the bankruptcy process without regard for certain creditors.

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