GM bond exchange falling far short of target

GM bond exchange falling far short of target

Automotive News | May 26, 2009 – 12:16 pm EST


DETROIT (Reuters) — General Motors has failed to persuade enough bondholders to accept a debt-for-equity swap, setting the stage for the largest-ever U.S. industrial bankruptcy by the end of this month.

The largest U.S. automaker had so far failed to gain anywhere near the 90 percent of bondholder support desired to stave off bankruptcy, two sources familiar with the discussions told Reuters today. Bondholders have until midnight to make their final decision on the tender.

As of midday Tuesday, the source said the company had only "low-single-digit" interest from bondholders.

Reuters’ sources said GM will likely file for bankruptcy some time after midnight Tuesday, but before June 1.

The failure to gain bondholder support is a critical disappointment for GM, the largest U.S. automaker and once considered the standard-bearer of all U.S. manufacturing.

"I would say this is a sound rejection of an unsuitable offer," said Pete Hastings, a credit analyst at Morgan Keegan who has followed GM. "I have been saying for some time that this thing was dead on arrival and we were just waiting for the doctor to pronounce it dead. Now that’s happened."

As various deadlines near for the automaker, officials at the UAW will gather to hear how many U.S. factory jobs GM will cut as part of its restructuring.

Union officials representing 54,000 GM workers are scheduled to meet to prepare for a quick ratification vote on a cost-cutting labor deal negotiated last week. The union aims to complete those votes by Thursday.

Approval of the contract, which would change payment terms on $20 billion owed to a UAW trust fund, represents one of the hurdles for GM to clear before a June 1 deadline set by the Obama administration.

But bondholders have balked at proposals that they forgive debt in exchange for a 10 percent stake in a restructured company.

A person familiar with Obama administration thinking on the matter said the administration was continuing to engage with bondholders to reach agreement.

Shares of GM, which the automaker has warned could be worthless in a bankruptcy, were down 20 cents or 14 percent at $1.23 on the New York Stock Exchange on Tuesday.

The U.S. government has provided a $19.4 billion in loans to GM so far.

In an interview broadcast over the weekend, Obama said he hoped GM and Chrysler would emerge from restructuring "leaner, meaner, more competitive."

"Ultimately, I think that GM is going to be a strong company," he said.


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