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Bondholders Reject GM's Debt Exchange Offer; Bankruptcy Likely

05/27/2009
General Motors Corporation (GM) has failed to reach agreement with its bondholders on a debt exchange plan that may have saved the automaker from bankruptcy. In a statement, GM says that the exchange offer expired at 12:01 a.m. this morning with "substantially less than the amount required by GM to satisfy the debt reduction requirements under its loan agreements with the U.S. Department of the Treasury, to meet the debt reduction objectives under its viability plan, or to meet the minimum tender condition of the exchange offers as required by the U.S. Treasury." GM had previously said it would need 90 percent of the bondholders to agree to the plan, which would have given them a 10 percent stake in a restructured company. GM's deadline with the federal government to restructure or face bankruptcy is Monday, and the rejection by bondholders makes bankruptcy the most likely option. "They said no. That's it. They tried. That's why they're going to have to file for bankruptcy," says John Pottow, a professor at the University of Michigan who specializes in bankruptcy, as quoted by the Associated Press (AP). At the same time, AP reports that the United Auto Workers (UAW) and GM had agreed to a new concession plan on which UAW members will vote today and tomorrow. Reports indicate that under bankruptcy reorganization, the UAW's agreement would put approximately 19 percent more shares of the company into the government's hands than previously planned, for a total of 69 percent. GM says its board of directors will be meeting to discuss the company's next steps.

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