April 17, 2009 / 6:53 PM / 10 years ago

GM creditors open to "deep concessions" on debt: source

NEW YORK (Reuters) - General Motors Corp bondholders are willing to make “deep concessions” if GM can produce a viable business plan and get equal concessions from other stakeholders, a source familiar with the committee’s plans said on Friday.

GM Chief Executive Fritz Henderson on Friday said the world’s No. 2 automaker was preparing for a bankruptcy filing that it still hopes to avoid. The automaker, which is surviving due to $13.4 billion of U.S. government aid, suffers from massive debt and health care costs it must manage.

A major sticking point is how GM can iron out agreements with major bondholders of some $28 billion of unsecured debt. GM also must devise a new plan to restructure its entire business, cut labor costs and rework the funding of a healthcare trust for United Auto Workers union retirees—all before U.S.-imposed June deadline.

Henderson on Friday said there has been an “open dialogue” with bondholders who need to make deeper concessions. Henderson replaced former chief Rick Wagoner last month.

“What we have had is dialogue,” Henderson said on Friday. “I wouldn’t say we have had a lot of intense meetings.”

A person close to the 10-member GM bondholder committee said there have been no substantive talks with GM for more than three weeks.

GM bondholders disagreed with Henderson’s “open dialogue” assessment. GM sent the committee a term sheet on March 24 that “was a good starting point for a dialogue, but the term sheet was pulled in the days following because of the change in GM management,” the person said.

GM bonds rose and its shares were down 5 cents, or 2.6 percent, at $1.89 on Friday afternoon. The stock has lost roughly half of its value since the end of March and traded as high as $24.23 a year ago.

GM’s benchmark 8.375 percent bonds due in 2033 rose more than 1 cent on the dollar to 9 cents, yielding 90 percent, according to MarketAxess data. Those bonds traded as high as 20 cents in March.

GM last month offered bondholders 8 cents cash on the dollar, 16 cents on the dollar in new unsecured debt, and a 90 percent stake in the automaker.

A new offer may include no cash, no new debt and equity in the company, but bondholders have not seen revised terms yet.

GM’s Henderson said that those negotiations will proceed along with the UAW talks, and that bondholders may see a plan “as soon as possible” this month.

Additional reporting by Poornima Gupta in Detroit, Editing by Chizu Nomiyama

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