GM Bondholders Approve Plan, Paving Way for Bankruptcy

A majority of General Motors bondholders have agreed to a debt-for-equity exchange, a source familiar with the voting said Sunday, helping pave the way for a bankruptcy filing expected Monday.

CNBC.com

The bondholders completed voting Saturday and slightly more that 50 percent agreed to the swap that would give them up to 25 percent ownership of a reorganized GM in exchange for $27 billion in debt, said the source.

A bankruptcy filing by GM would rank as the third-largest bankruptcy in U.S. history and the largest and most complex manufacturing bankruptcy ever.

GM has been losing market share since the early 1980s when it commanded 45 percent of the U.S. market. It has been hurt by its reliance on a truck-dominated vehicle line-up and by a deep plunge in demand as credit tightened in 2008.

Since last week, GM has been racing to complete a series of last-minute deals intended to help speed its way through a fast-track bankruptcy that would see it emerge under the majority ownership of the U.S. government.

Those deals have included a new contract for the United Auto Workers union and an agreement to spare GM's Opel brand from collapse in a deal brokered by the German government.

Bondholders have been one of the last pieces to fall into GM's complicated bankruptcy puzzle under the direction of the autos task force appointed by the White House and headed by former investment banker Steve Rattner.

In late March, the Obama administration put the automaker on 60-day notice to restructure and clinch concessionary deals with its union and bondholders.

The U.S. government has already pumped $19.4 billion in emergency funds into the Detroit-based automaker since the start of the year.

In a typical Chapter 11 bankruptcy case, the company files a plan of reorganization that must be voted on by creditors. In each class of creditors, the plan would have to be approved by holders of two-thirds of the claims and a majority of the number of individual creditors who vote.

But the GM case is anything but ordinary, and it appears the company will sell some or all of its assets to a new entity that would become the new GM, rather than submit a plan to reorganize the old company.

Under a so-called Section 363 sale, the prospective buyer and seller present a fully negotiated asset purchase agreement for approval by the court. Creditors still can lodge objections, but GM could avoid the drawn-out fights between competing creditors, such as bondholders and workers, that often occur.

Chrysler, which filed for bankruptcy protection April 30, chose a similar path. A judge heard three days of testimony and arguments last week over the sale of most of Chrysler's assets to Italian carmaker Fiat SpA.

U.S. Judge Arthur Gonzalez is expected to approve the sale Monday, pushing Chrysler closer to its goal of a speedy exit from bankruptcy protection.

But an appeal is likely from three Indiana state pension and construction funds, which invested in Chrysler debt and say the deal isn't fair. That may force Chrysler to further postpone the deal's closing.

Chrysler claims that any substantial delay could push Fiat to back out if the deal, since the Italian automaker has set a deadline of June 15 to wrap up a transaction.

GM's stock tumbled to the lowest price in the company's 100-year history on Friday, closing at just 75 cents after trading as low as 74 cents.

In a Chapter 11 bankruptcy reorganization, the shares would become virtually worthless.

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