GM Bankruptcy closer as Bondholders Balk

GM bankruptcy closer as bondholders balk
Robert Snell and David Shepardson / The Detroit News

Detroit -- General Motors Corp. is preparing to file for bankruptcy Monday after unsecured bondholders overwhelmingly rejected an offer to exchange their GM debt for equity in the automaker.
While there is room and a few days left for a last-minute deal, it would be difficult, if not impossible, for GM to shed more than 2,000 dealerships and cut billions in debt outside a court-ordered restructuring, industry experts said Wednesday.
There was no indication that another offer would be made to bondholders, but if an agreement were reached it could spare GM a prolonged, complicated bankruptcy.

GM's board of directors is scheduled to meet late this week to discuss the company's next move in light of the failed bond exchange offer, but it has few options.
No matter the outcome, what was once the largest company in the world, holding more than half of the U.S. auto market in 1962, will end up far smaller, shedding half of its brands, more than a quarter of its U.S. plants and a third of its workers.GM issued weekly paychecks on Tuesday this week, three days early, to reassure nervous employees ahead of a likely bankruptcy. GM workers would continue to get paid during any court restructuring.

The automaker, aided by its primary bankruptcy law firm, Weil, Gotshal & Manges, has been working for months on a plan to shed many of its unprofitable assets in bankruptcy. The government is preparing to lend GM at least $30 billion during bankruptcy and after it emerges from court protection, while the Canadian government also plans to loan GM billions.
GM would likely file its plan under Section 363 of the Chapter 11 bankruptcy code, as did Chrysler LLC.

The law would let the Detroit automaker split into an "Old GM" and a "New GM." The old company would contain unresolved debts and nonperforming assets and remain in bankruptcy court for a prolonged period. The "New GM," consisting of assets such as Cadillac, Chevrolet, GMC and Buick and essential auto plants, could emerge from bankruptcy in a few months.
A person familiar with the matter said President Barack Obama's auto task force expects a GM bankruptcy would be more complex than Chrysler's and take about 60 to 90 days, compared to 30 to 60 days for Auburn Hills-based Chrysler.

Chrysler quickly identified the plants it would shutter and leave behind in bankruptcy. GM hasn't decided what assets it would leave behind or whether it will eliminate more than the 1,100 dealers it has already identified and wants to close by 2010. But the automaker is expected to disclose in a bankruptcy filing the names of the 14 plants it wants to shutter by the end of next year and to outline significant additional salary cuts.

GM also is not likely to immediately disclose plans for its Renaissance Center headquarters in Detroit. The automaker is still considering moving its corporate headquarters to Warren -- a possibility GM disclosed in a briefing with reporters this month. A person familiar with the matter said the Obama auto task force would leave that decision to GM.
U.S. Sen. Carl Levin, D-Detroit, raised the headquarters issue Wednesday in a call with GM CEO Fritz Henderson. Levin opposes a GM move out of Detroit and possibly to Warren, which is wooing GM.

As GM braces for bankruptcy, Obama has yet to sign off on some key decisions, such as how much financing to give the automaker in bankruptcy and when it emerges. The Detroit News reported this week that the task force was expected to grant GM about $30 billion on top of the $19.4 billion in federal loans GM has received so far.
The government also has infused $7.5 billion in General Motors Acceptance Corp. to assure lending to GM dealers and customers, and created a $1.25 billion program to backstop the warranties of GM and Chrysler buyers in bankruptcy.

GM has until Monday's government-imposed deadline to win concessions from bondholders. "The deadline is near but it's not passed yet," White House spokesman Robert Gibbs said Wednesday. "The team continues to work on getting all the stakeholders involved."
Bondholders could be asked to forgive the $27 billion owed to them in exchange for a much larger equity stake than the 10 percent they rejected on Tuesday. They also could get a chunk of equity that was expected to go to the United Auto Workers, which reached a tentative agreement with GM earlier this week on cost-saving contract modifications and payments into a union-run health care trust.

"The potential is there for some kind of deal," said David Cole, chairman of the Center for Automotive Research in Ann Arbor. "The idea of government running an industry is like third-graders teaching college calculus: They could be smart, but they don't know what they're doing."
The tentative UAW deal gives the union up to 20 percent of GM stock --about half as much as initially projected. That leaves the government with up to a 70 percent equity stake in GM.

Cole said the government could give most of that stake -- 40 percent --to satisfy bondholders.
Wall Street reacted negatively Wednesday to the failed bond exchange, sending GM shares down 29 cents, or 20 percent, to $1.15.