'New GM' envisions initial public stock offering in 2010

NEW YORK -- If General Motors wins court approval for its asset sale this week, a "New GM" could be ready to make an initial public offering in 2010, a U.S. Treasury official testified in U.S. bankruptcy court Wednesday.

But if the sale does not close by the government's July 10 deadline, the government will withdraw its portion of the $33 billion "debtor-in-possession" financing for GM, said Harry Wilson, a member of the Obama administration's auto task force. "We cannot make an open-ended commitment. At one point, it's better to cut one's losses."

Wilson was in court to argue that the only viable option to save GM is a sale of its main assets to a "New GM" backed by the federal government. An IPO would allow the government to exit its investment.

GM was in the second day of a bankruptcy court hearing in Manhattan in which it is asking Judge Robert Gerber to approve a sale of its best assets to New GM, 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 whether GM could have pursued a traditional reorganization. "There was a constant dialogue in thinking through our options," Wilson said, but the government concluded that a sale was the "only viable path forward for the company."

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.

If the GM deal is approved, the company will be able to sell its best assets, including Chevrolet and Cadillac, under Section 363 of the bankruptcy code to New GM. The U.S. Treasury would provide $60 billion in financing to New GM, including a proposed $50 billion that would give the U.S. Treasury a 60% stake in the company.

The United Auto Workers union would gain a 17.5% stake, the Canadian government would own about 12% and GM bondholders are expected to get about 10%. GM's old assets would remain behind in bankruptcy court to be liquidated.