- The Washington Times - Tuesday, April 28, 2009

DETROIT — General Motors Corp. could be majority owned by the federal government under a massive restructuring plan laid out Monday that would cut 21,000 U.S. factory jobs by next year and phase out the storied Pontiac brand.

The plan, which includes an offer to swap about $27 billion in bond debt for GM stock, would leave current shareholders holding just 1 percent of the century-old company, which is fighting for its life in the worst auto sales climate in 27 years.

GM is living on $15.4 billion in government loans and said Monday in a filing with the U.S. Securities and Exchange Commission that it envisions receiving an additional $11.6 billion. But if GM’s restructuring plan can’t satisfy the government by June 1, the struggling company could go into bankruptcy protection.

GM said it would ask the government to take more than 50 percent of its common stock in exchange for canceling half the government loans to the company as of June 1. The swap would cancel about $10 billion in government debt.

In addition, GM is offering stock to the United Auto Workers for at least 50 percent of the $20 billion the company must pay into a union run trust, which will take over retiree health care expenses starting next year.

If both are successful, the government and UAW health care trust would own 89 percent of GM stock, with the government holding more than a 50 percent stake, Chief Executive Officer Frederick A. “Fritz” Henderson said in a news conference at GM’s Detroit headquarters.

President Obama’s administration said in a statement that the bond exchange filing is an important step in GM’s restructuring, but the administration has not made a final decision about taking stock for part of its loans.

Mr. Henderson said that although the government would own a majority of GM’s outstanding common shares, the Treasury “hasn’t demonstrated interest in running the company,” but would have someone on the board looking out for the taxpayers’ interest. The task force has directed current board Chairman Kent Kresa to replace several board members.

The struggling automaker said it would offer 225 shares of common stock for every $1,000 in notes held by bondholders as part of a debt-for-equity swap. Mr. Henderson said the objective is to reduce GM’s $27 billion of outstanding public debt by about $24 billion. The company estimates that after the exchange, bondholders would own 10 percent of the company.

The plans, if successful, would reduce GM’s debt by $44 billion from the present figure of about $62.4 billion.

Mr. Henderson said if the debt exchange isn’t successful, he would expect GM to file for bankruptcy protection around June 1, but such a filing would be unlikely very long before the deadline. Bondholders have until May 26 to accept the exchange offer.

Erich Merkle, an independent auto analyst in Grand Rapids, Mich., said the likelihood of a bankruptcy for Chrysler may set the tone for more cooperation from GM bondholders and union negotiators as they seek to stay out of their own Chapter 11 filing. Because of GM’s size and the broader economic implications, dealing with two costly and time-consuming bankruptcies may be more than the government wants to tackle, he said.

Washington Times reporter Andrea Billups contributed to this report.

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