GM bankruptcy almost inevitable, experts say

ByABC News
May 11, 2009, 9:21 AM

DETROIT -- For General Motors, the task at hand is so difficult that experts say a Chapter 11 bankruptcy filing is all but inevitable.

To remake itself outside of court, GM must persuade bondholders to swap $27 billion in debt for 10% of its risky stock. On top of that, the automaker must work out deals with its union, announce factory closures, cut or sell brands and force hundreds of dealers out of business all in three weeks.

"I just don't see how it's possible, given all of the pieces," said Stephen J. Lubben, a professor at Seton Hall University School of Law who specializes in bankruptcy.

In Ohio, the automaker employs thousands at a number of plants, including a major assembly complex in Lordstown, near Youngstown.

Although company executives said last week they would still prefer to restructure out of court, experts say all GM is doing now is lining up majorities of stakeholders to make its court-supervised reorganization move more quickly.

"If we need to pursue bankruptcy, we will make sure that we do it in an expeditious fashion. The exact strategies I'm not getting into today, but we'll be ready to go if that's required," Chief Executive Fritz Henderson said last week.

The threat of bankruptcy, however, may be just a negotiating ploy to pull reluctant bondholders into the equity swap deal. In Chrysler's case, some secured debtholders resisted taking roughly 30 cents on the dollar for what they were owed, but most gave in after they were identified in court documents.

Henderson, who took over in March when the government ousted Rick Wagoner, said last week there's still time to get everything done by the deadline, although he conceded it will be difficult to meet a government requirement that 90% of its thousands of bondholders agree to the stock swap.