GM bondholder offer crashes; bankruptcy soon

A General Motors Corp bankruptcy filing seemed inevitable after a rebellion by its bondholders forced it to withdraw...

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,labour 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 per cent of the companys stock had failed. GM has received $19.4 billion in federal loans. GM shares lost 16 cents,or 11.1 per cent,at $1.28 in premarket trading.

John Pottow,a professor at the University of Michigan who specializes in bankruptcy,said GM evading bankruptcy now is almost impossible. They said no. Thats it. They tried. Thats why theyre 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 per centage 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 US Department of the Treasury, GM said in a statement issued Wednesday. The Obama administration has said it would only provide more funds if 90 per cent of the bondholders,as well as unionized workers,agreed to concessions that substantially reduced GMs costs.

GM also said it canceled meetings set for Wednesday with holders of notes that were not sold in US 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 per cent stake in GM down from the original plan of 39 per cent. Wilkinson would not say why GM didnt make the offer to bondholders more attractive.