GM makes new bondholder offer ahead of bankruptcy

DETROIT Thu May 28, 2009 11:24am EDT

General Motors of Canada vehicles are shown at a dealership in Toronto May 20, 2009. REUTERS/Mike Cassese

General Motors of Canada vehicles are shown at a dealership in Toronto May 20, 2009.

Credit: Reuters/Mike Cassese

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DETROIT (Reuters) - General Motors Corp said on Thursday it had reached a deal with some major bondholders that would give them a bigger stake in a reorganized automaker and could pave the way for a fast-track bankruptcy backed by the U.S. Treasury within days.

The announcement was the clearest indication yet that GM, the No. 1 U.S. automaker, is close to filing for bankruptcy under the direction of the Obama administration. It would be the biggest-ever bankruptcy for a U.S. industrial company.

Under the proposed deal, which is supported by major institutional creditors holding about a fifth of its debt, bondholders representing $27 billion in debt would be offered 10 percent of a reorganized GM -- the same stake they had been offered previously.

In a sweetener, bondholders would also receive warrants to acquire another 15 percent of the equity in the new company, provided they support a quick Treasury-backed sale process similar to one now being used for rival Chrysler.

Bondholders would have until 5 p.m. EDT on Saturday to indicate they would not oppose the sale process as planned, GM said. If bondholders do not provide those indications, common equity and warrants "would be substantially reduced or eliminated."

A committee representing the major bondholders said they supported the revised offer as the "the best alternative ... in the current difficult and dire situation."

The proposed sale process would see GM's profitable assets sold to a new company funded by the U.S. government in a fast-track bankruptcy process.

The U.S. Treasury would own 72.5 percent of the new GM coming out of a bankruptcy sale process while a trust affiliated with the United Auto Workers union would own 17.5 percent, GM said in a filing with securities regulators.

Treasury is the largest lender to GM at this point.

GM, which has so far taken $19.4 billion in emergency U.S. government loans, was told by the Obama administration in late March that it had until June 1 to dig deeper and move faster for continued support.

GM has been steadily losing money for more than four years. The automaker had executed a number of restructuring steps, including cutting excess capacity and employees, but critics have said GM's restructuring had been too slow-moving.

GM shares were up 17 cents, or 14.8 percent, at $1.32 on Thursday morning on the New York Stock Exchange. Current shares are expected to be heavily diluted or wiped out.

GM's 8.375 percent bonds due 2033 were up 1.45 cents at 8.55 cents on the dollar, according to MarketAxess.

(Reporting by Kevin Krolicki, David Bailey, Soyoung Kim, Poornima Gupta, Dena Aubin, Walden Siew, editing by Matthew Lewis)

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