UPDATE 3-GM shares slump as bankruptcy fear grows

Mon Apr 13, 2009 7:26pm EDT

* GM may be pushed into bankruptcy by June 1

* Bondholders not presented with any new terms--source

* GM shares down more than a third so far this month

* White House says has not prejudged bankruptcy for GM

* S&P says Ford may need to revisit gov't loan request (Adds White House comment)

By Soyoung Kim

DETROIT, April 13 (Reuters) - General Motors Corp (GM.N) shares plunged 16 percent on Monday as traders shed positions out of fear the U.S. government will push the automaker into a bankruptcy that could wipe out existing equity.

GM, which is operating with $13.4 billion in emergency federal loans, has until June 1 to win sweeping concessions from bondholders and the United Auto Workers union.

The New York Times reported late on Sunday that the U.S. Treasury Department was directing GM to lay the groundwork for a bankruptcy filing should it fail to reach give-back deals with stakeholders by the deadline set by the Obama administration two weeks ago. [ID:nN12356870]

President Barack Obama has said bankruptcy might be necessary, but his chief spokesman stressed on Monday that the "president and the (administration's) autos task force haven't prejudged anything."

The administration, according to spokesman Robert Gibbs, believes government's role in determining what steps GM will take has its limits.

"The eventuality of that bankruptcy or not, in some ways, will be determined by many of those stakeholders," Gibbs said at the White House.

Sources familiar with the situation told Reuters last week GM was in "intense" and "earnest" preparations for a possible bankruptcy filing.

"I think the amount of uncertainty has increased," Shelly Lombard, senior high yield analyst at independent research firm Gimme Credit, told Reuters Financial Television.

"At this point, I think a filing is more imminent, but by the same token I think what will happen to bondholders and their potential recovery is probably more uncertain than ever," Lombard said.

GM is under pressure to cut $28 billion of unsecured debt by two-thirds, make half of its remaining payments to a union healthcare trust in equity rather than cash and reduce hourly wages and benefits to match those paid by foreign automakers.

Chrysler, about 80 percent controlled by Cerberus Capital Management LP [CBS.UL], also faces possible bankruptcy unless it cements an alliance with Italian automaker Fiat SpA FIA.MI by April 30 and wins concessions from bank lenders and the UAW.

A GM or Chrysler bankruptcy also could pressure rival Ford Motor Co (F.N), which has not sought emergency U.S. government loans, but faces severe pressure from the drop in U.S. auto industry sales to the lowest levels in 27 years.

"We believe Ford may have to revisit its informal request for $9 billion of loans from the U.S. government, unless industry sales begin to recover later this year," Standard & Poor's said on Monday. [ID:nWNA1595]

GM LESS OPPOSED TO BANKRUPTCY?

GM Chief Executive Fritz Henderson, who took charge of the struggling automaker when the Obama administration ousted his predecessor, Rick Wagoner, has said GM would prefer to restructure out of court, but was prepared to file for bankruptcy if necessary.

Under Wagoner, GM had said repeatedly that a bankruptcy filing would be more costly than an expanded government bailout and could be devastating for its business.

GM declined further comment on Monday.

"We think GM's new CEO, Fritz Henderson, is simply not as opposed to a filing as his predecessor," JPMorgan analyst Himanshu Patel said in a note to clients on Monday. "Henderson has always had a more sobering assessment of the sustainability of GM's liabilities."

"The government's task force, as it drives deeper into GM's finances, may have come to a sobering realization itself that ... very few GM balance sheet restructuring scenarios can really make GM's leverage viable," Patel said.

The White House task force charged with retooling the U.S. auto industry is meeting with GM officials in Detroit this week to accelerate the restructuring process for the automaker, once the embodiment of U.S. industrial might.

Standard & Poor's analyst Efraim Levy said that even if GM avoids bankruptcy through a sweeping debt restructuring, any turnaround would dilute existing equity significantly.

Patel said the deep balance sheet restructuring demanded by the U.S. Treasury would be a tough pill to swallow for GM bondholders and the UAW, making bankruptcy more likely.

In negotiations with bondholders, GM last month offered 8 cents cash on the dollar, 16 cents on the dollar in new unsecured debt, and a 90 percent stake in the automaker, according to a person with knowledge of the term sheet.

Bondholders have not been presented with new terms, a source familiar with GM's talks with bondholders said on Monday.

Shares of GM were down 33 cents, or 16 percent, at $1.71 on the New York Stock Exchange.

The stock has lost more than a third of its value since March 30, when President Barack Obama rejected GM's turnaround plans and warned it could be put through bankruptcy to slash debt. (Reporting by Soyoung Kim, Walden Siew and David Bailey; Editing by Steve Orlofsky and Andre Grenon)

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