General Motors Corp has failed to persuade enough bondholders to accept a debt-for-equity swap, setting the stage for the largest-ever U.S. industrial bankruptcy within days.
The event marks a critical disappointment for GM, the largest U.S. automaker and once considered the bellwether of U.S. manufacturing.
“I would say this is a sound rejection of an unsuitable offer,” said Pete Hastings, a credit analyst at Morgan Keegan who has followed GM. “I have been saying for some time that this thing was dead on arrival and we were just waiting for the doctor to pronounce it dead. Now that’s happened.”
But bondholders have balked at proposals that they forgive debt in exchange for a 10 percent stake in a restructured company.
GM had no comment on the bond exchange. The automaker said it would detail results of the exchange on Wednesday morning. Reuters sources said GM could file for bankruptcy some time after midnight Tuesday, but before June 1.
While the failure to reach a bondholder deal is a severe blow, GM did reach an agreement on Tuesday with the leadership of the United Auto Workers (UAW) union.
The UAW agreed to take 17.5 percent of common stock in a restructured GM, a person familiar with the terms told Reuters. The union would also be paid $6.5 billion in preferred stock and would be granted a $2.5 billion note.
A deal on those terms would mean that the union was successful in taking on less risk than it would have under an earlier proposal from GM that would have given it 39 percent of the automaker’s common stock.
Current shareholders would be left with just 1 percent of a restructured company.
“It’s a slap in the face,” said James Yarbrough, a retired accountant from Plano, Texas, referring to the 10 percent equity stake offer.
A person familiar with Obama administration’s thinking on the matter said the White House was continuing to engage with bondholders to reach agreement. Yahoo News
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