Automakers' Debt May Be Obstacle to Federal Loans

Chrysler, a private company, does not have to open its books, but its CEO, Robert Nardelli, has said it would be difficult for the company to make it without federal aid. All three likely are negotiating with the UAW for delays in payments to the trusts.

The answer to the debt problem may lie in another component of the plans that GM, Ford and Chrysler will deliver to Congress on Tuesday. CEOs from all three companies, plus UAW President Ron Gettelfinger, will appear again before the Senate Banking Committee Thursday and the House Financial Services Committee on Friday.

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Two people briefed on GM's plan say the automaker will at least make an effort to negotiate swapping some of its debt for equity, either shares or warrants to buy them. Chrysler also is likely to include a similar provision, a person briefed on its plan said Monday.

None of the people wanted to be identified because the plans haven't been delivered to Congress.

GM's board approved the plan Monday after a two-day meeting.

But industry analysts say it makes sense for bondholders and other creditors to gamble on equity in the company with part of their GM debt in order to keep the automaker out of bankruptcy protection.

"There will have to be concessions made by debtholders," said Kevin Tynan, an auto industry analyst with Argus Research in New York. "The argument can be made that if not, there's a good chance you're not going to get anything back anyhow."

GM bonds already are trading at 20 to 30 cents on the dollar, so bondholders wouldn't be giving up that much, Tynan said.

A complicating factor is that bond rating agencies may further downgrade GM's credit if debt is exchanged for equity, said Standard & Poor's Credit Analyst Gregg Lemos Stein.

GM, he said, is now at a low CCC-plus, but if it swapped a large amount of debt for equity, Standard & Poors would view that as "tantamount to default" and give it an SD rating for "selective default," Lemos Stein said.