General Motors Withdraws Offer for Bond Debt Swap, Bankruptcy Imminent

General Motors World Headquarters








General Motors Corp. on Wednesday withdrew its offer to swap bond debt for company stock, saying that too few bondholders agreed to the deal. The move sets the stage for what almost certainly will be a bankruptcy filing.

GM has until Monday to finish restructuring or file for reorganization under Chapter 11. But the company said Wednesday that its offer to exchange $27 billion in unsecured debt for 10 percent of the company's stock had failed.

GM has received $19.4 billion in federal loans. The Monday deadline was set by the government and includes debt reduction, labor cost cuts and plant closures.

The automaker said its board will meet to decide its next step.

"The principal amount of notes tendered was substantially less than the amount required by GM to satisfy the debt reduction requirement under its loan agreements with the U.S. Department of the Treasury," GM said in a statement issued Wednesday.

The Obama administration has said it would only provide more funds if 90 percent of the bondholders, as well as unionized workers, agreed to concessions that substantially reduced GM's costs.

There was a small hope Tuesday that GM could avoid a bankruptcy filing when the United Auto Workers union disclosed that it would take a 20 percent stake in GM — down from the original plan of 39 percent. That seemingly freed 19 percent of the Detroit-based company's shares to sweeten the pot for its recalcitrant bondholders.

But because the bondholder deal did not go through, the equity freed by the UAW deal now apparently will go to the U.S. government, which may have to commit billions more for GM's restructuring in court.

The government's stake in the company originally was to be 50 percent, according to GM's regulatory filings. But it now could be as high as 69 percent. The Canadian government also could get equity for up to $8 billion in aid for the automaker.

Such an arrangement would leave bondholders back where they started — and a Chapter 11 filing all but certain. The deadline for GM's bondholders to tender their debt was midnight Tuesday.


Source: Yahoo News