Washington - General Motors was skidding toward bankruptcy Wednesday after bondholders rejected a plan to swap a large portion of the troubled automaker's debt for equity in the firm.
GM said it failed to get enough participation in a plan to exchange $27.2bn of its notes, which had been required under GM loan agreements with the US Treasury and the company's own "viability" plan.
GM was widely expected to file for bankruptcy protection ahead of a June 1 deadline imposed by the administration of President Barack Obama, which has providing the automaker with billions of dollars in emergency loans.
The rejection suggests a likely bankruptcy filing that some analysts say could be messier and longer than that of Chrysler, which appeared poised to emerge as a new entity from court supervision.
Douglas Bernstein, a Michigan bankruptcy attorney who represents auto suppliers, said GM's fate rests on "the power and the desire of the US Treasury in having the transaction pushed through quickly."
But he argued that even if Chrysler emerges quickly from court, "it's not automatic in the case of GM".
Bernstein said a different judge may consider other matters and GM has numerous stakeholders: "The judge has to weigh all the parties' due process rights."
Moreover, he said there is no outside party willing to take over GM, compared with Chrysler, which would emerge as part of a partnership with Italy's Fiat.
Martin Weiss, president of Weiss Research, said of GM: "It's far larger than Chrysler, far more complex and far more likely to backfire on nearly all concerned."
GM, which was once the world's biggest company, would likely be the largest industrial bankruptcy in US history, presenting challenges.
Record bankruptcy
"It is a completely different ballgame when you are looking at a company as geographically diverse as GM is," said Rebecca Lindland, an auto industry analyst at IHS Global Insight.
"We've never had a company this large declare bankruptcy."
The US government has provided $19.4bn in emergency loans to GM as of now, and could provide additional funds to pave the way for a quick bankruptcy that could allow GM, like Chrysler, to shed debts and legacy costs.
Canada would also likely provide cash, giving the two governments a majority stake, according to a source familiar with GM negotiations.
The source said however that a GM bankruptcy "would be a much more complicated process than for Chrysler" and might not be as fast.
Under the plan for GM, the US Treasury would have a majority stake in GM, which the source said was unavoidable because "the company was in a position where it needed a huge amount of capital."
The United Auto Workers union agreed to a significantly smaller stake in General Motors in exchange for job protections and other incentives, according to union sources.
The UAW agreed to accept a 17.5% stake in the troubled automaker rather than the 39% stake proposed in the viability plan GM presented to the US Treasury.
It was not clear where the remaining stake would be allocated, although it could be used to help sweeten a deal offered to bondholders.
Union leaders meeting in Detroit recommended a the deal which was being presented to workers for a ratification votes on Wednesday and Thursday.
The common shares are being granted in exchange for forgiving much of a $20bn debt to a union-run retiree health care trust fund, known as a VEBA.
The trust fund will also receive $6.5bn in preferred stock carrying a nine percent cash dividend valued at approximately 584 million dollars, according to a contract summary prepared for union officials.
GM also agreed to transfer $2.5bn in cash to the health care fund in three equal payments starting in 2013.
The union has also received a commitment from GM and the US Treasury that three of four assembly plants targeted for closing will now have the chance to build vehicles GM had planned to build in other countries such as China or Mexico.
- AFP