GM moves closer to filing for bankruptcy protection
DETROIT -- With only one major obstacle looming, General Motors appears to have nearly everything lined up for an orderly bankruptcy reorganization, one the government hopes will be short but could quickly unravel.
As of early Wednesday, The Associated Press reported that GM is expected to announce that only a small fraction of the holders of its $27 billion in bonds agreed to swap that unsecured debt for a 10% equity share of a recapitalized GM.
The automaker also is waiting on workers to approve a renegotiated contract, which was tentatively agreed to late last week. United Auto Workers members will vote Thursday whether to agree to pay cuts, less job security, and to take less money in the workers' health care funds.
All signs seem to point to a bankruptcy filing by GM. If the bondholder agreement fails there will be little to keep GM from filing by the government-set deadline of June 1.
"It's unpredictable, uncertain times," says David Cole, chairman of the Center for Automotive Research. "Nobody knows for certain where things will end up."
Bondholders were offered about 225 shares of stock in GM for every $1,000 in debt they held, giving them about 10% in the restructured company once it emerged from bankruptcy. The UAW was supposed to get about 39%, but the renegotiated contracts call for 17.5% and 2.5% in warrants, along with other assets.
"The deal has slim to no chance of happening," says Shelly Lombard, analyst at Gimme Credit. "It's a recipe for bankruptcy."
The government has said it favors a short bankruptcy for GM, if the bondholder and UAW deals can't be completed outside of court. The bankruptcy would be similar to the one Chrysler is going through currently. It filed for court protection April 30, and could emerge from court protection shortly.
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