General Motors gm moved closer to an organized bankruptcy filing by persuading a key group of bondholders to forgive much of its debt.
GM, expected to file for bankruptcy protection by or on Monday, persuaded a group representing about a third of its bondholders to swap their part of $27.2 billion in debt for shares in a new GM to be created in bankruptcy court.
The U.S. initially will hold 72.5% of the new GM and pour in an estimated $30 billion to finance restructuring. Canadian governments are expected to contribute additional financing and, if so, would receive equity from the U.S. share. Upon bankruptcy emergence, GM is expected to be privately held at least six months.
GM's deal with bondholders, which includes their promise not to oppose the bankruptcy, could smooth its trip through court. GM is more complex and about three times as large as Chrysler, which filed April 30 and could emerge shortly.
Under the deal, bondholders would get a 10% stake in the new GM and warrants to buy another 15%, according to its federal filing. It is contingent on GM pursuing a form of bankruptcy in which its best assets would be sold to a new GM and its "bad" parts would be liquidated.
The remaining two-thirds of bondholders have until 5 p.m. Saturday to join the deal. Bondholders rejected an earlier offer of only a 10% stake in company.
Meanwhile, a deal between GM and the United Auto Workers, being voted on by union members today, would give the union retiree health fund 17.5% of the company to pay part of GM's debt to the fund and a warrant to buy 2.5% more.
The bondholders' committee said it agreed to the new terms because it didn't want to risk a fight in bankruptcy court. "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 bondholders' committee said in a statement.
Separately in Europe, Germany's effort to separate GM unit Opel and protect it from a GM bankruptcy filing has so far failed. Lead bidders are Italian automaker Fiat and Canadian parts-maker Magna, but no deal has been reached.