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UPDATE 3-GM makes new bondholder offer ahead of bankruptcy

 * GM makes new offer to bondholders ahead of bankruptcy
 * Major bondholders support improved deal terms
 * GM would be nationalized, over 70 pct US gov't-owned
 * GM bonds rise, stock up 3.5 pct
 (Adds comments by analysts, other source, background, updates
share price)
 By Kevin Krolicki and David Bailey
 DETROIT, May 28 (Reuters) - General Motors Corp GM.N said
on Thursday it had reached a deal with major bondholders that
would give them a bigger stake in a reorganized and effectively
nationalized automaker and could pave the way for a fast-track
bankruptcy by GM 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.
 The new GM would be more than 70 percent owned by the U.S.
Treasury, which would agree to provide at least another $40
billion in capital to the company.
 Under the terms of the unprecedented transaction, the Obama
administration would create and fund a new company to buy GM's
key assets out of bankruptcy in the final chapter of the
100-year-old automaker's long decline.
 Bondholders representing about $27 billion in GM's bond debt
would be offered 10 percent of a reorganized company. Those were
the same terms they were offered earlier this week in a debt
exchange that failed.
 But in a sweetener, bondholders would also receive warrants
to acquire another 15 percent of the equity in the new GM,
provided they support a quick Treasury-backed sale process
similar to one now being used for rival Chrysler.
 GM bondholders now have until 5 p.m. EDT (2100 GMT) on
Saturday to indicate they will not try to block a bankruptcy
sale process.
 "It's likely the best option on the table as it's probably
as good a deal as is going to be made available," said Pete
Hastings, a fixed income analyst at Morgan Keegan.
 "We urged that our clients reject the previous offer. But
we'll probably urge that institutional investors sign on to this
one," he said.
 It was not clear how much support U.S. officials were
targeting from investors. GM said that if too few creditors
signed on to the deal, the ownership stake offered to
bondholders could be slashed.
 "The message is that we have a better deal for you, but if
you don't take it then all bets are off," said IHS Global
Insight analyst Aaron Bragman.
  A committee representing GM's major bondholders with about
$5.4 billion of debt said they supported the revised offer as
the "the best alternative ... in the current difficult and dire
situation."
 Andrew Denatale, a lawyer with Stroock & Stroock & Lavan,
said GM would need bondholders with two-thirds of its total bond
debt and a majority of investors to support the plan in
bankruptcy.
 "There's no downside for GM or the government in attempting
to get as much of the credit constituency on board now,"
Denatale said. "It would make the process easier."
 OWNERSHIP AND DEBT DETAILED
 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.
 The governments of Canada and Ontario are in discussions
with U.S. officials and could take some of the equity stake or
debt from the U.S. government's allocation, a person with direct
knowledge of the process said.
 The U.S. government has become the largest lender to GM as
it slides toward insolvency and about $50 billion in U.S.
Treasury loans would be converted into equity during its
restructuring.
 The U.S. government would also hold $8 billion of debt and
$2.5 billion in perpetual preferred stock, suggesting total
funding from the government of nearly $60 billion.
 GM has so far taken $19.4 billion in emergency U.S.
government loans. The remainder would be provided in new
financing and financing for the GM bankruptcy process.
 Once seen as an emblem of U.S. industrial strength, GM has
lost $88 billion since 2005 as auto sales began to slow in its
home market. Its financial problems deepened when the credit
crisis of late 2008 shut down vehicle financing.
 At its peak in 1980, GM controlled 45 percent of the U.S.
auto market. That dropped to 19 percent in the first four months
of this year and GM lost its mantle as the global auto sales
leader to Toyota Motor Corp 7203.T in 2008 as its crisis
deepened.
 GM's bondholders have been advised by law firm Paul, Weiss,
Rifkind, Wharton & Garrison LLP and financial adviser Houlihan
Lokey Howard & Zukin Capital Inc.
 Houlihan Lokey will take the lead in trying to win support
for the new bondholder proposal, the person with direct
knowledge of the process said.
 GM shares were up 4 cents, or 3.5 percent, at $1.19 on the
New York Stock Exchange, after rising as much as 23 percent
earlier in the day. Current shares are expected wiped out in the
GM reorganization.
 GM's 8.375 percent bonds due in 2033 rose to 9 cents on the
dollar from 7.1 cents before the new offer, according to
MarketAxess.
 (See also "FACTBOX-GM's possible bankruptcy process, new bond
offer" [ID:nN28330108] )
 (Reporting by Kevin Krolicki, David Bailey, Soyoung Kim,
Poornima Gupta, Nick Carey, Dena Aubin, Walden Siew and Phil
Wahba, editing by Gerald E. McCormick and Matthew Lewis)


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