GM has until Monday to complete a government-ordered restructuring that includes debt reduction, labor cost cuts and plant closures. But a Chapter 11 reorganization is likely after the company said its offer to exchange $27 billion in unsecured debt for 10 percent of the company's stock had failed. GM has received $19.4 billion in federal loans.
The move came as crosstown rival Chrysler LLC headed to court Wednesday to ask bankruptcy judge for permission to sell the bulk of its assets to a group headed by Italy's Fiat Group SpA in hopes of saving itself from liquidation. Attorneys for Chrysler maintain that the Fiat deal is the company's only hope to avoid being sold piece by piece, but car dealers, debtholders, former employees and others are protesting.
Chrysler filed for bankruptcy protection April 30, after the government ended talks with a group of holdout debtholders. Both automakers were pulled down by overwhelming debt, high pension, health care and other labor costs relative to competitors, a global auto sales slump and a dismal U.S. housing market that pulled down demand for pickup trucks, their top-selling vehicles.
News of the failed GM bond exchange offer sent its shares down 22 cents, or 15.3 percent, to $1.22 in afternoon trading.
John Pottow, a professor at the University of Michigan who specializes in bankruptcy, said GM evading Chapter 11 now is almost impossible.
"They said no. That's it. They tried. That's why they're going to have to file for bankruptcy," Pottow said.
GM spokesman Tom Wilkinson said the board will meet later this week to decide its next move, but he would not say exactly when. He also would not say if the company would soon file for Chapter 11, nor would he reveal what percentage of bondholders took the offer.
"The principal amount of notes tendered was substantially less than the amount required by GM to satisfy the debt reduction requirement under its loan agreements with the U.S. Department of the Treasury," GM said in a statement issued Wednesday.
The Obama administration has said it would only provide more funds if 90 percent of the bondholders, as well as unionized workers, agreed to concessions that substantially reduced GM's costs.
A GM bankruptcy would be the fourth-largest in U.S. history based on its $91 billion in assets, and the largest for an industrial company. The top bankruptcy by assets was the September 2008 filing by Lehman Brothers Holdings Inc. at $691 billion, followed by Washington Mutual Inc. at $327.9 billion, according to BankrupctyData.com. WorldCom Inc. ranks third at $103.9 billion, while Chrysler LLC's bankruptcy filing would be seventh at $39.3 billion.
There was a small hope Tuesday that GM could avoid a bankruptcy filing when the United Auto Workers union disclosed that it would take a 20 percent stake in GM |
