GM deadline passes for creditors to accept sweetened offer

Automotive News | May 30, 2009 – 3:05 pm EST


GM deadline passes for creditors to accept sweetened offer

DETROIT (Reuters) — General Motors today finished a key piece of business before a bankruptcy filing planned for Monday as the deadline for bondholders to accept an exchange offer brokered by the Obama administration expired.

GM would not comment on how many investors had expressed support for the debt-for-equity swap that would give them up to 25 percent of a reorganized company in exchange for $27 billion in bond debt.

Bondholders had until 5 p.m. EDT to register their support for the deal, which would give them up to 25 percent of a reorganized GM.

The new, sweetened deal for the bondholders — a 10 percent stake in the reorganized GM and warrants for another 15 percent stake — already had the support of investors representing at least 35 percent of GM’s bonds.

Fund managers and analysts said it was possible that the bond offer could have attracted a majority of the GM bond investors by the deadline.

"The warrants and the improved capital structure make for an improved recovery for bondholders," Barclays Capital analyst Brian Johnson said. "In terms of the bankruptcy process, we expect the likely bondholder assent to smooth the process."

Under the new offer, bondholders would have a recovery of around 9 cents on the dollar, up from an estimate of zero to 5 cents under the previous offer, Johnson said.

GM bondholders last week rejected a proposal that would have given them a 10 percent stake in a reorganized GM.

UAW boost

The automaker on Friday got a boost when the UAW overwhelmingly ratified a new cost-cutting labor agreement with GM, clearing a major hurdle in its restructuring efforts.

GM is expected to file for Chapter 11 protection on Monday, and President Barack Obama will likely discuss the next steps in its reorganization at that time. GM on Friday said CEO Fritz Henderson will hold a mid-day press conference in New York but didn’t outline the topic.

In late March, the Obama administration put the automaker on 60-day notice to restructure the company and clinch concessionary deals with its union and bondholders even as it pumped an eventual $19.4 billion in emergency funds to keep the company afloat.

The White House said on Friday that rival Chrysler’s bankruptcy proceedings demonstrate the possibility of an orderly restructuring of a major U.S. carmaker and could be a model for GM.

A bankruptcy filing by GM would rank as the third-largest bankruptcy in U.S. history and one of the largest and most complex manufacturing bankruptcies.

Everyone will be hurt

GM’s bankruptcy is likely to hurt the entire industry — including rival Ford Motor Co. and suppliers, many of whom are already struggling to survive as GM’s purchasing budget runs at about $94 billion annually.

"The real question is what’s going to happen to the supply base now," said Dennis Virag, president of the Automotive Consulting Group in Ann Arbor, Michigan.

A filing by GM could also hurt U.S. consumer confidence, which has been ticking up in the past few months, he added.

GM has struggled in recent years to compete, hurt by its pickup and SUV-dominated vehicle lineup and U.S. vehicle sales this year that have plunged to 27-year lows.

The automaker has lost $82 billion over the past four years even as it continued to cut excess production capacity, jobs and dispose of assets, including brands.

Since 2000, GM has slashed more than 100,000 jobs in the United States and plans to cut another 19,000 by 2012 to bring total U.S. employment to about 72,500.

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