GM says bondholder offer failed

DETROIT (AP) — A General Motors Corp. bankruptcy filing seemed inevitable after a rebellion by its bondholders forced it to withdraw on Wednesday a plan to swap bond debt for company stock.

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.

GM shares lost 17 cents, or 11.8 percent, at $1.27 in morning trading.

John Pottow, a professor at the University of Michigan who specializes in bankruptcy, said GM evading bankruptcy now is almost impossible.

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“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.

GM also said it canceled meetings set for Wednesday with holders of notes that were not sold in U.S. dollars. The statement said the meetings were to discuss amendments to the debt-for-equity offers, but it did not specify what the amendments were.

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 — down from the original plan of 39 percent. That seemingly freed 19 percent of the Detroit-based company’s shares to sweeten the pot for its recalcitrant bondholders.

Wilkinson would not say why GM didn’t make the offer to bondholders more attractive.

Because the bondholder deal did not go through, the equity freed by the UAW deal now apparently will go to the U.S. government, which may have to commit billions more for GM’s restructuring in court.

The government’s stake in the company originally was to be 50 percent, according to GM’s regulatory filings. But it now could be as high as 69 percent. The Canadian government also could get equity for up to $8 billion in aid for the automaker.

Such an arrangement would leave bondholders back where they started — and a Chapter 11 filing all but certain. The deadline for GM’s bondholders to tender their debt was midnight Tuesday.

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