General Motors gm has struck a deal with 20% of its bondholders to swap shares in a newly formed automaker once the company emerges from bankruptcy, the company said in a filing with the Securities and Exchange Commission on Thursday.
The deal, brokered by the U.S. Treasury Department, will give shareholders a 10% stake in the new GM and warrants to buy 15% more of the automaker at a deep discount, the filing says. But the deal is contingent on GM filing for a section 363 bankruptcy, which would split the automaker into "good" and "bad" parts.
A person familiar with GM's plans said it is "probable" that the company would file for bankruptcy protection on Monday. The person didn't want to be identified because the plans were still under discussion with the U.S. and Canadian governments.
The government proposal is similar to the approach taken in the bankruptcy reorganization approach used by Chrysler. Its plan to shed assets and sell control of a downsized carmaker to Fiat, aided by government financial assistance, could receive final approval from a bankruptcy court judge in New York before the end of the week.
A senior Obama administration official estimated that GM would be under bankruptcy protection for 60 to 90 days, which is longer than Chrysler's reorganization because of the size and complexity of GM. The official spoke on condition of anonymity because of the sensitive nature of the ongoing preparations.
Remaining bondholders have until 5 p.m. ET Saturday to agree to the terms, which would erase $27.2 billion off GM's books. A group representing GM's biggest bondholders has already agreed to the terms.
In exchange for a larger share of the company, the bondholders agree to not oppose a sale of GM's good assets into the new company.
"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.
Treasury would own about 72.5% of GM when it emerges from bankruptcy, according to the filing.
The bondholders rejected an earlier proposal that would have given them a 10% stake in company. A trust held by the United Auto Workers will get 17.5% of the company and warrants to buy 2.5% more.
"While the committee continues to remain troubled by preferential treatment that the UAW ... is receiving compared to the bondholder class — rejecting this offer in the expectation that the bondholders will do better in a litigated outcome was a risk the committee is unwilling to take," the bondholder committee said in a statement.
The bondholders' committee says Treasury has agreed to "advance substantial additional funds to GM" and convert about $40 billion to equity in the new company. The increased financial support from Treasury "gives the bondholders the opportunity to recover a greater portion of their original investment than was previously offered," they said in the statement.
A coalition of retail bondholders, meanwhile, continues to oppose the offer. The group said the new offer remains unfair to retirees who depend on GM bonds for income and is overly favorable to the UAW.
"From the beginning there's been a lack of transparency in this entire restructuring process," said Jim Martin, president of the retiree group 60 Plus Association, in a statement. "No one seems to have the best interests of small bondholders at heart."
United Auto Workers President Ron Gettelfinger said Thursday he does not want to get into a debate with bondholders while the union is pushing for ratification of concessions to GM.
"An objective person that stood back and looked at all the sacrifices that have been made by active workers and retirees would see that we have made tremendous sacrifice," he said. The union's role, he said, was to get the best deal it could for active members and retirees.