GM decides to file Chapter 11 bankruptcy as bondholder deadline passes(1)

General Motors Corp. president and Chief Executive Officer Fritz Henderson have scheduled a news conference in New York on Monday, when the Detroit automaker is expected to file Chapter 11 bankruptcy, according to media reports Sunday.

GM's board of directors met for a second day Saturday to make the final decision. The outcome of the meeting could not immediately be determined. GM and the Treasury Department, which has been guiding the Detroit automaker toward a rescue plan that will give taxpayers nearly a three-fourths stake in the company, went into secrecy mode.

A Dodge Nitro vehicle is seen in front of the General Motors Corp world headquarters in downtown in Detroit, May 28, 2009. General Motors Corp persuaded its major bondholders to accept a sweetened ownership plan on Thursday, a deal that could result in a smoother ride for the carmaker through bankruptcy. (Xinhua/Reuters Photo)
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GM's bondholders had a 5 pm Saturday deadline to accept an offer to swap their 27 billion U.S. dollars in debt for at least a 10 percent stake in a new GM. If the Treasury doesn't get the amount of support it wants, bondholders could wind up with far less in bankruptcy court.

The Treasury Department had no immediate comment on the deadline passing, and GM spokesman Tom Wilkinson said the automaker did not plan to make any statements Saturday.

In a typical Chapter 11 bankruptcy case, the company files a plan of reorganization that must be voted on by creditors. In each class of creditors, the plan would have to be approved by holders of two-thirds of the claims and a majority of the number of individual creditors who vote.

The auto maker, living on U.S. government loans, faces a Monday deadline imposed by the Obama administration to present a viable restructuring plan and access fresh federal aid. Bondholders disagreed on threatened efforts for a quick bankruptcy process that would allow GM to emerge with a sustainable balance sheet, removing much of the debt burden that has fueled losses alongside the slide in global auto sales.

U.S. President Barack Obama said a liquidation and bankruptcy would have been the only option in the absence of a U.S. majority stake in troubled General Motors Corp. and that he expected the government to own less than 72 percent.

"My preference would have been to stay out of it completely," Obama said in an interview with NBC News recorded on Friday at the White House and aired on Saturday. "But the alternative was to see a liquidation, bankruptcy in which an enormous institution with huge importance to our economy simply gets broken up in to pieces."

GM took a huge restructuring step Friday when the United Auto Workers union agreed to a cost-cutting deal, and early Saturday, Germany's finance minister said a plan was approved for Canadian auto parts maker Magna International Inc. to move ahead with a rescue of GM's Opel unit.

But there was still much to do to beat the government's Monday deadline to qualify for more aid. The company already has received about 20 billion dollars in government loans and could get 30 billion dollars more to make it through what is expected to be a 60- to 90-day reorganization in bankruptcy court.

The Treasury on Thursday offered bondholders 10 percent of a newly formed GM's stock, plus warrants to buy 15 percent more to erase the debt. Last week, GM withdrew an offer of 10 percent equity after only 15 percent of the thousands of bondholders signed up.

It was unclear how many bondholders took the latest offer, although a group representing large creditors who hold 20 percent of debt agreed to it. If the 15 percent who took the first offer are added in, that would make 35 percent.

Elliott Management Corp., a 13-billion-dollar hedge fund and major GM bondholder, also said it had decided to accept the new deal. But Spokesman Scott Tagliarino wouldn't say how much GM bond debt Elliott represents.

Getting as many bondholders as possible to sign on to the offer in advance of a bankruptcy filing could help the automaker get through the court process more quickly, said Robert Gordon, head of the corporate restructuring and bankruptcy group at Clark Hill PLC in Detroit.

"The more consensus you have, the more likely it is you'll be able to move through the bankruptcy process in an expeditious fashion with less resistance," Gordon said.