Treasury official: If GM bankruptcy is delayed, U.S. will withdraw

NEW YORK -- The only viable option to save General Motors is a sale of its main assets to a "New GM" backed by the federal government, a U.S. Treasury official told a bankruptcy court Wednesday as the automaker sought approval for the deal.

The official, Harry Wilson, also said the government would withdraw its portion of the $33 billion "debtor-in-possession" financing for GM if the sale of the main assets did not close by the government's July 10 deadline.

GM was in the second day of a bankruptcy court hearing in Manhattan in which it is asking Judge Robert Gerber to approve its asset sales, just one month after filing for Chapter 11 bankruptcy.

At the beginning of the hearing, lawyers for a group of dissenting bondholders asked GM restructuring adviser Bill Repko, of the investment bank Evercore, and Wilson, a senior member of the Obama administration's autos task force, whether GM could have pursued a traditional reorganization rather than a speedy sale of its assets to New GM.

"There was a constant dialog in thinking through our options," Wilson said, but the government concluded that a sale was the "only viable path forward for the company."

"We could not find any reasonable measure of opinion from anyone ... who felt that General Motors could survive a traditional Chapter 11," Wilson told the court.

He testified that last December the government was "effectively the lender of last resort" for GM, which gave it significant leverage over the automaker's restructuring. He said the government wants GM to stay in bankruptcy for only 30 to 40 days.

Wilson estimated that GM has received $10 billion in funding since its bankruptcy filing. The U.S. government provided the bulk of the funding, with about 15% coming from the Canadian government, he said.

Under questioning from a lawyer representing personal injury claimants, Wilson said the government did feel obliged to take on liability claims if they prevented New GM from being viable.

GM CEO Fritz Henderson on Tuesday told a bankruptcy court judge that the automaker's only hope for survival is to sell off the good assets to the federal government and liquidate the rest.

A successful sale creating a "New GM" would mark the second big victory for the Obama administration's autos task force, which in June won approval for brokering the sale of Chrysler assets out of bankruptcy court to a group led by Italy's Fiat. The U.S. Supreme Court cleared the way for that deal on June 9.

No competing bidders have emerged as an alternative to the U.S. government's $60 billion financing for GM. That includes a proposed equity investment of $50 billion that would give the U.S. Treasury 60% ownership.

Under the plan, the United Auto Workers union would gain a 17.5% stake in New GM, the Canadian government would own about 12% and GM bondholders are expected to get about 10%.

If the deal is approved, GM will be able to sell its best assets, including Chevrolet and Cadillac, under Section 363 of the bankruptcy code, to New GM, with the Treasury providing billions of dollars in financing. GM's old assets would remain behind in bankruptcy court to be liquidated.