WRAPUP 4-GM bondholders shun tender offer; bankruptcy nears

Tue May 26, 2009 4:53pm EDT

Related Topics

 * Bondholders do not agree to swap
 * UAW leadership agrees to VEBA terms
 * Michigan governor sees parts makers needing $8 bln
 * Opel decision by German govt anticipated
 * GM shares ride roller-coaster; end up 1 cent
 (Adds closing stock price, UAW comment)
 By Kevin Krolicki and Jui Chakravorty Das
 DETROIT/NEW YORK, May 26 (Reuters) - General Motors Corp
(GM.N) has failed to persuade enough bondholders to accept a
debt-for-equity swap, setting the stage for the largest-ever
U.S. industrial bankruptcy within days.
 The event marks a critical disappointment for GM, the
largest U.S. automaker and once considered the bellwether of
U.S. manufacturing.
 "I would say this is a sound rejection of an unsuitable
offer," said Pete Hastings, a credit analyst at Morgan Keegan
who has followed GM. "I have been saying for some time that
this thing was dead on arrival and we were just waiting for the
doctor to pronounce it dead. Now that's happened."
 The largest U.S. automaker had so far failed to gain
anywhere near the 90 percent of bondholder support desired to
stave off bankruptcy, two sources familiar with the discussions
told Reuters on Tuesday. Bondholders have until midnight to
make their final decision on the tender. [ID:nN26497252]
 As of midday Tuesday, the source said the company had only
a "low-single-digit" percentage interest from bondholders.
 But bondholders have balked at proposals that they forgive
debt in exchange for a 10 percent stake in a restructured
 GM had no comment on the bond exchange. The automaker said
it would detail results of the exchange on Wednesday morning.
Reuters sources said GM could file for bankruptcy some time
after midnight Tuesday, but before June 1.
 While the failure to reach a bondholder deal is a severe
blow, GM did reach an agreement on Tuesday with the leadership
of the United Auto Workers (UAW) union.
 The key for GM's negotiations with the UAW has been how the
two sides restructured payment terms on $20 billion that the
automaker still owes to a trust fund for retiree health care
(the Voluntary Employee Beneficiary Association, or VEBA).
 The UAW agreed to take 17.5 percent of common stock in a
restructured GM, a person familiar with the terms told
 The union would also be paid $6.5 billion in preferred
stock and would be granted a $2.5 billion note.
 A deal on those terms would mean that the union was
successful in taking on less risk than it would have under an
earlier proposal from GM that would have given it 39 percent of
the automaker's common stock.
 As part of the plan, GM will offer buyouts to all UAW
employees. Workers with 20 years or more will be offered
$115,000 and a $25,000 voucher toward purchase of a new GM
 The UAW did not sugar-coat its view of GM's current
 "GM today stands at the very brink of bankruptcy," the union
said in a document distributed to GM workers that detailed the
concessions it had agreed to make.
 The UAW rank-and-file will vote on the contract on
Wednesday and Thursday. Union officials who met in Detroit on
Tuesday unanimously endorsed the pact after a briefing with UAW
President Ron Gettelfinger, a person at the meeting said.
 Current shareholders would be left with just 1 percent of a
restructured company.
 "It's a slap in the face," said James Yarbrough, a retired
accountant from Plano, Texas, referring to the 10 percent
equity stake offer.
 Yarbrough has invested $158,000 in GM bonds, which he first
bought in 1994. He regrets buying more bonds in 2008, when he
thought GM was about to make a turnaround.
 "This will probably force me to sell my house," Yarbrough
said. "I'm going to fight until the end."
 A person familiar with Obama administration's thinking on
the matter said the White House was continuing to engage with
bondholders to reach agreement.
 GM shares, which could be worthless in a bankruptcy, ended
Tuesday trade up 1 cent at $1.44 on the New York Stock Exchange
after trading between $1.12 and $1.84 on the day.
 The U.S. government has provided a combined $36.6 billion to
GM, Chrysler and their financing units since December.
 In an interview broadcast over the weekend, Obama said he
hoped GM and Chrysler would emerge from restructuring "leaner,
meaner, more competitive."
 Chrysler is seeking approval this week to sell itself to a
"New Chrysler" owned by the U.S. and Canadian governments,
Chrysler's union and Italian carmaker Fiat SpA (FIA.MI). A
hearing on the sale will take place on Wednesday.
 On Tuesday, a U.S. federal judge denied a request by a
group of Indiana pension funds to delay the company's sale
hearing and remove the bankruptcy case to district court.
 The U.S. auto companies' struggles have also hurt the
companies that make vehicles' components.
 U.S. auto suppliers will be in dire need of up to $8
billion in emergency government aid over the next few months
particularly if GM enters bankruptcy, Michigan Gov. Jennifer
Granholm said.
 "We need to provide the (auto) suppliers with the means to
get through the next 60 to 90 days," Granholm said at a press
conference in Detroit.
 Flanked by Michigan Congressman Sander Levin and Ed
Montgomery, who is spearheading efforts to help communities
suffering from the U.S. industry's worst downturn in decades,
Granholm said she has asked the Obama administration for aid
for suppliers.
 She said that nationally there is an "unmet need" for $8
billion in aid for auto suppliers. Much of that aid will be
needed in Michigan. [ID:nN26504103]
 While much attention is on Washington and Detroit, talks
continue in Europe over the possible sale of GM's Opel unit.
 On Tuesday, Germany pressed three bidders for Opel to
improve their offers for the carmaker, saying they needed to
assume greater risks and make credible commitments to preserve
jobs and sites. [ID:nLQ677656]
 Economy Minister Karl-Theodor zu Guttenberg told reporters
after meeting Fiat (FIA.MI) Chief Executive Sergio Marchionne
in Berlin that the Italian carmaker's offer looked serious but
that rival bidders Magna MGa.TO and RHJ International
(RHJI.BR) remained in contention.
 "There's no favorite," he said. "Everyone knows that
improvements are still necessary."
 In an unexpected twist, China's Beijing Automotive Industry
Corp (BAIC) also submitted an offer, potentially turning the
three-way race into a four-way battle.
 Fiat made an aggressive last-ditch push to convince the
German government to back its bid for Opel ahead of a top-level
meeting in Berlin on Wednesday where a preliminary decision on
preferred bidders is expected.
 Marchionne met with Chancellor Angela Merkel and Guttenberg
on Tuesday morning to try to address German concerns about his
ambitious plan to fold Opel into a transatlantic car empire
that would also include U.S. carmaker Chrysler.
 The German government hoped to be able to settle on one or
more preferred bidders late Tuesday or Wednesday, a step which
could lead to further negotiations.
 Pressure to choose a preferred bidder is building ahead of
the June 1 restructuring deadline for GM. [ID:nN25529202]
 Across the border in Canada, GM workers at plants in
Ontario on Monday ratified concessions negotiated last week
with a vote of 86 percent in favor. [ID:nN25452190]
 (Reporting by Jui Chakravorty and Kevin Krolicki; additional
reporting by John Crawley, Walden Siew, Andreas Moeser, Noah
Barkin, David Lawder, Emily Chasan and Nick Carey; editing by
Patrick Fitzgibbons and Matthew Lewis)

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