GM working on new plan to avoid bankruptcy

18 April 2009

The Obama administration has directed the near-bankrupt General Motors Corp to prepare a new restructuring plan that would pay off bondholders and members of the automaker's major union in stock in exchange for $48 billion in debt, according to several reports.

The US treasury, which has provided $13.4 billion in emergency funding to keep GM operating since the start of the year, has indicated that it could also convert those taxpayer-backed loans into GM stock, the reports said.

GM, which is working to complete a restructuring that could include a bankruptcy filing, plans to make the new proposals to bondholders and the United Auto Workers union by April 27 to exchange their $27.5 billion in claims for equity.

GM, facing a 1 June deadline for a government-backed bankruptcy, was told this week by President Barack Obama's auto task force to try to restructure its debt out of court. However, there was no official confirmation of the developments of the confidential nature of the talks between GM and President Barack Obama's autos task force, which is charged with revamping the US auto industry.

The Detroit-based automaker is planning to announce the offer within 11 days, because the US Securities and Exchange Commission requires that investors must have a month to decide whether to participate, according to one report. Bondholders also may be offered accrued interest in cash.

The proposals emerged after two weeks of intense talks between the government's auto task force, headed by former investment banker Steve Rattner and GM executives in Detroit. The stock-based payout to GM's major union and its bondholders would represent much deeper concessions for both groups than the terms they had been offered under the GM bailout loans approved by the Bush administration.