DETROIT (AP) -- Bondholders' overwhelming rejection of General
Motors' debt-for-equity offer virtually ensures GM will file for
Chapter 11 bankruptcy protection within days.
A person familiar with discussions between GM and the government
told The Associated Press any Chapter 11 bankruptcy filing would
probably come around the government's Monday deadline for GM to
finish restructuring or enter court protection. The person asked
not to be identified because the talks are private.
The government, which has already extended nearly $20 billion in
loans to GM, ordered the company to come up with a plan that 90
percent of its bondholders would agree to. But the government
allowed it to offer only 10 percent of the company's stock. GM was
forced to withdraw the offer Wednesday after it fell far short.
"They said no. That's it. They tried. That's why they're going
to have to file," said John Pottow, a professor at the University
of Michigan who specializes in bankruptcy.
GM bondholders are owed about $27 billion, the largest chunk of
GM's roughly $58 billion in debt. They were offered the 10 percent
stake to wipe out the debt, far short of the 58 percent they felt
they deserved.
To avoid an in-court restructuring, the government had said GM
must shed debt, cut labor costs and close plants. If GM enters
bankruptcy protection, it would be the fourth-largest such filing
in U.S. history and the largest for an industrial company.
Like its crosstown rival Chrysler, which was angling Wednesday
for a judge's permission to sell most of its assets to a group
headed by an Italian automaker, GM was pulled down by debt, high
labor costs and a devastating sales slump.
The government has poured billions into the two companies,
fearing the ripple effects of catastrophic job losses might push
the economy into a depression. The pair employ more than 126,000
people in the U.S., and hundreds of thousands of others rely on the
companies working for parts suppliers, dealerships and other
associated businesses.
GM spokesman Tom Wilkinson said company's board would meet later
this week to decide its next move. He would not reveal what
percentage of bondholders accepted the debt-for-equity offer, but
GM said it was "substantially less" than needed.
Meanwhile, Germany pressed for an independent future for General
Motors' Europe-based Opel unit. The foreign minister said "the
lights must not go out" on Opel even if the parent company is
headed for bankruptcy court.
Opel's supervisory board approved a plan to pool GM's European
assets -- including plants, sales operations and patents but
excluding Sweden's Saab brand -- for a new investor, said Karin
Kirchner, a spokeswoman for GM Europe.
GM would choose any new investor, but Germany would decide on
whether a new owner would get further government assistance, and if
so what kind. But a high-level meeting hosted by Chancellor Angela
Merkel to discuss the future of Opel ended Wednesday night without
a decision. Germany's economy minister, Karl-Theodor zu Guttenberg,
said after talks that lasted most of the night that Germany does
not yet have the security to provide the estimated $418 million in
bridge funding that Opel needs.
Two investors -- Italy's Fiat Group SpA and Canadian auto parts
maker Magna International Inc. -- remain in the running but U.S.
financial investor Ripplewood Holdings LLC has bowed out. The
government needs further information from GM and the U.S. Treasury
Department before decisions can be made, Guttenberg said, and
expects to receive it by Friday.
Offering a glimmer of hope that GM might avoid seeking
bankruptcy protection, the United Auto Workers union agreed this
week to take only a 20 percent stake in GM, down from the original
plan of 39 percent.
Analysts speculated that the move would free up 19 percent of
GM's shares to be used elsewhere, perhaps to sweeten the deal for
bondholders. But that never happened, and now the U.S. government,
which may have to commit billions more to GM's court-supervised
restructuring, stands to become a majority owner.
Under the debt exchange plan announced by GM last month,
bondholders were to get 225 shares of GM stock for every $1,000
they had in debt, a 10 percent stake. Current stockholders would
end up owning just 1 percent of the company.
GM's biggest bondholders, mostly big banks and other
institutional investors, opposed that swap offer from the start.
Smaller bondholders -- individual investors like retirees and
families -- have complained about the terms, too.
Some analysts said GM's bondholders may be holding out for
better terms in bankruptcy court, where they would normally get up
to 40 percent of their holdings back.
Many large investors also hold insurance policies known as
credit default swaps that would reimburse them if GM goes under.
That might be a better deal than battered GM stock.
For the bondholders, "If you're bullish on the prospects of the
company, you might think that's a great deal," Pottow said. "If
you're bearish on the prospects of the company, you might not think
that's a great deal."
Associated Press Writers Philip Elliott in Washington and Geir
Moulson in Berlin contributed to this report.