GM Says Bondholder Panel Supports Sweetened Offer

DETROIT (AP) - General Motors Corp. said Thursday a committee of bondholders has agreed to a sweetened deal proposed by the U.S. government to erase the automaker's unsecured debt in exchange for company stock.

The news came in a regulatory filing that spells out the Obama administration's game plan for what it hopes will be a speedy Chapter 11 bankruptcy reorganization that will leave GM with a much smaller debt load and the U.S. government as the dominant shareholder.

A person familiar with GM's plans said it was "probable" that the company would file for bankruptcy protection on Monday. The person didn't want to be identified because the plans were still under discussion with the U.S. and Canadian governments.

The government proposal is similar to the approach taken in the bankruptcy reorganization approach used by Chrysler LLC. Its plan to shed assets and sell control of a downsized carmaker to Fiat, aided by government financial assistance, could receive final approval from a bankruptcy court judge in New York before the end of the week.

A senior Obama administration official estimated that GM would be under bankruptcy protection for 60 to 90 days, which is longer than Chrysler's reorganization because of the size and complexity of GM. The official spoke on condition of anonymity because of the sensitive nature of the ongoing preparations.

The government's goal for GM is to eventually return it to profitability, allowing it to eventually sell its shares. But the risks for taxpayers are daunting, with U.S. auto sales near their lowest level in 27 years.

"We will come out of this rid of some of the historic legacy costs that have been dragging us down for the last 20 years or so," GM Vice Chairman Bob Lutz said Thursday at an Automotive Press Association luncheon in Detroit. "We will come out of it with an all new focus on product development."

The revised offer to the holders of $27 billion in unsecured GM bonds amounted to a take-it-or-leave-it ultimatum: Go along with what the government auto task force's proposal or be left holding the assets a new GM doesn't want - ones with presumably little value at all.

In addition to the 10 percent of the stock in a newly formed GM that was originally rejected by bondholders, the new offer would give them warrants to acquire an additional 15 percent stake at a deep discount. That would come only if they agree to support selling the company's assets to a new company under bankruptcy court protection.

The Securities and Exchange Commission filing said that if enough bondholders don't agree to support the sale by 5 p.m. Saturday, the amount of stock and warrants they get would be substantially reduced or eliminated. The filing didn't specify how much support is needed.

The government had demanded that 90 percent of GM's bondholders agree to a previous debt-for-equity swap that failed. The Obama administration official said the government would not require a specific percentage of bondholders to approve the new proposal but would make a judgment call based on the level of support.

About 15 percent of bondholders had agreed to the previous proposal, the official said. Combined with the approval of a bondholders committee and other large debtholders that collectively hold about 20 percent of GM's unsecured debt, the government now expects at least 35 percent support, the official said.

The committee said it would go along with the new deal, but it was still unfair.

"While the committee continues to remain troubled by preferential treatment that the UAW VEBA is receiving compared to the bondholder class - rejecting this offer in the expectation that the bondholders will do better in a litigated outcome was a risk the committee is unwilling to take," the committee said in a statement.

A coalition of retail bondholders, meanwhile, continued to oppose the offer. The group said the new offer remained unfair to retirees who depend on GM bonds for income and was overly favorable to the UAW.

"From the beginning there's been a lack of transparency in this entire restructuring process," said Jim Martin, president of the retiree group 60 Plus Association, in a statement. "No one seems to have the best interests of small bondholders at heart."

United Auto Workers President Ron Gettelfinger, in a telephone interview with The Associated Press Thursday, said he didn't want to get into a debate with bondholders while the union is pushing for ratification of concessions to GM.

"An objective person that stood back and looked at all the sacrifices that have been made by active workers and retirees would see that we have made tremendous sacrifice," he said. The union's role, he said, was to get the best deal it could for active members and retirees.

Under the proposal, GM would enter bankruptcy protection and its good assets would be separated from bad ones.

The U.S. Treasury, which already has lent GM $19.4 billion, would get 72.5 percent of the new company's shares and provide $30 billion in additional financing needed to keep the new GM operating while its reorganization plan is reviewed by a bankruptcy court judge and the old GM is liquidated. The Canadian government was expected to provide an additional $9 billion, the Obama administration official said.

A United Auto Workers' retiree health care trust fund will get 17.5 percent and the old GM, effectively owned by the unsecured bondholders, would get a 10 percent stake.

The plan envisions the slimmed-down new GM, shorn of more plants and brands, would have $17 billion in long-term debt and $9 billion in debt-like preferred shares. That would represent a 61 percent decline from its existing debt load of about $67 billion.

Only $8 billion of the existing U.S. government loans would remain on the books; the remainder would be converted into equity and preferred shares of the new GM.

The deal would wipe out GM's $27 billion in unsecured bond debt, converting to equity a total of $50 billion in company debt.

GM's filing said that if the deal goes through, the new GM would emerge with a total of $17 billion in debt - $8 billion owed to the U.S. government, $2.5 billion to the UAW trust and $6.5 billion in mainly overseas and capital lease debt.

The Obama administration official said the holders of GM's $6 billion in secured debt would be "protected" but declined to elaborate.

Trading of GM shares was halted for a short time Thursday morning, but resumed to fall 2 cents to $1.12 in afternoon trading.


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