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GM offers bondholders new deal as bankruptcy deadline nears

In this photo taken June 3, 2008, new General Motors Hummer SUVs sit on a dealer lot in Benton, Ark. GM is expected to declare bankruptcy by Monday.

Associated Press (2008)

In this photo taken June 3, 2008, new General Motors Hummer SUVs sit on a dealer lot in Benton, Ark. GM is expected to declare bankruptcy by Monday.

WASHINGTON — General Motors Corp. said Thursday that it would offer holders of $27 billion of its bonds as much as 25 percent of the company, provided they don't contest a plan to sell the automaker's assets in a bankruptcy proceeding.

The new offer, which is backed by the U.S. Treasury and has the likely support of about 35 percent of bondholders, comes after an attempt to reduce the company's unsecured debt was rebuffed by a majority of bondholders.

Because that failed, GM is expected to declare bankruptcy by Monday. The government would provide GM with about $30 billion, on top of the $20 billion already given to the automaker, according to a senior Obama administration official who requested anonymity because of the sensitive nature of the negotiations.

Striking deals with as many of its stakeholders as possible before it goes into bankruptcy could help GM emerge from Chapter 11 more quickly. It already has reached a tentative contract agreement with the United Auto Workers.

Gaining goodwill from bondholders would be an additional important step toward that objective.

"We are extremely pleased by this development," the senior administration official said of the bondholders' willingness to accept the deal. "It is a very positive step forward in the process of restructuring GM and should allow the restructuring to proceed more smoothly than it would have."

Bondholders have until Saturday afternoon to accept the deal ahead of the Obama administration's Monday deadline for GM to complete its restructuring. But unlike the earlier proposal, which required 90 percent of bondholders to accept before it could be implemented, there is no set percentage needed for the latest offer, the administration official said.

As proposed in a Securities and Exchange Commission filing, bondholders would receive 10 percent of the company's shares after GM emerges from bankruptcy, along with warrants to purchase an additional 15 percent.

The government would receive an initial 72.5 percent stake in GM, with a retiree health care trust fund run by the UAW holding a 17.5 percent share.

The GM that emerges from bankruptcy would have $17 billion in debt, far less than current levels.

That would be accomplished by using the bankruptcy court to split the company through a process known as a 363 sale. That would leave the majority of GM's debts with the portions of the company that are not sold in the bankruptcy process.

"Implementation of this proposal would result in a new GM with a healthy balance sheet, putting the new company on a clear path toward long-term viability and success," the company said in a statement.

Standard & Poor's analyst Efraim Levy said Thursday that in the event of a bankruptcy filing, GM's existing shares would be essentially worthless.

Chrysler update

Chrysler chief executive Robert Nardelli said he expects the sale of the bulk of Chrysler's assets to a group headed by Italy's Fiat Group SpA to close today, assuming U.S. Judge Arthur Gonzalez approves the deal. But it's likely that if Gonzalez approves the deal, attorneys representing three Indiana state pension and construction funds, which hold Chrysler debt and are aggressively opposing the sale, will appeal the decision and force the company to postpone the closing. Fiat could back out if the deal doesn't wrap up by June 15.

Associated Press

GM offers bondholders new deal as bankruptcy deadline nears 05/28/09 [Last modified: Thursday, May 28, 2009 10:23pm]
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