GM: Bondholder offer fails; bankruptcy closer

Wednesday, May 27, 2009

GM: Bondholder offer fails; bankruptcy closer

Robert Snell and David Shepardson / The Detroit News

Detroit — General Motors Corp. has failed to lure enough bondholders to swap debt for a 10 percent stake in the company, which pushes the automaker closer to a Chapter 11 bankruptcy filing.

The number of bondholders who agreed to the swap was "substantially less" than the 90 percent mandated by the U.S. Treasury Department, which has loaned GM $19.4 billion.

The offer, which expired at 11:59 p.m. Tuesday, was widely viewed as unlikely to tempt GM’s unsecured bondholders to exchange about $24 billion in debt for a 10 percent piece of the restructured automaker.

The failed exchange could force GM to file Chapter 11 bankruptcy by Monday, the deadline by which the automaker was required to restructure and reach money-saving concessions with the United Auto Workers and bondholders.

"The GM Board of Directors will be meeting to discuss GM’s next steps in light of the expiration of the exchange offers," the automaker said in a statement today.

GM would not say exactly when the meeting is scheduled except to say it will be late this week.

In early trading, shares of GM were down 22 cents, or 15 percent, to $1.22.

President Barack Obama’s auto task force, which is overseeing GM’s restructuring and was in talks with bondholders Tuesday, expected the bond exchange offer to fail, two people familiar with the matter said. GM could file bankruptcy as early as Monday in New York.

A person familiar with the matter said there was still the possibility of "peace in the valley" between the auto task force and bondholders, declining the address the specifics of any enhanced offer to bondholders.

The offer was expected to fail considering a committee representing some of GM’s largest bondholders have called the offer unfair and countered with a proposal that would give them a 58 percent stake in the company.

Shareholders would get just 1 percent of the equity in GM.

Regardless of the results, GM needs to file Chapter 11 bankruptcy to become profitable company, said Jim McTevia, managing partner of Bingham Farms-based turnaround firm McTevia & Associates.

A bankruptcy filing would help GM restructure debt, shrink its dealer network, shed unprofitable assets and dispose of machinery and equipment, he said.

"I don’t think that a bondholder’s agreement is the difference between GM filing under Chapter 11 or not," McTevia said. "Being able to get creditors under control and operating a company properly and profitably is apples and oranges."

If GM files bankruptcy, the automaker is expected to receive about $30 billion in debtor-in-possession financing and exit financing. A person familiar with the matter said Obama hasn’t determined the precise amount of additional aid to GM.

Bondholders rank below GM’s $6 billion in senior secured debt and the government’s nearly $21 billion in debt, so in a liquidation of GM they would "they would get nothing or something unbelievably small," said a person familiar with the matter.

The Treasury — even if it receives a 70 percent equity stake in GM — wouldn’t exercise day to day control over GM’s operations or make decisions on where GM’s headquarters would be placed. The Treasury will not appoint government employees to GM’s board, but is helping GM to reconstitute its board of directors and will have the right to appoint some directors — as it does with the deal it has with Chrysler LLC.

The Canadian government will participate in the financing of GM’s expected bankruptcy — as it is doing with Chrysler — and is expected to receive an equity stake in GM. The Canadian and Ontario governments are receiving a 2 percent equity stake in Chrysler in exchange for $3.3 billion in loans.

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