Washington Post Staff Writers
Wednesday, May 27, 2009; 10:18 AM
Bondholders have rejected a debt exchange offer from General Motors that expired at midnight last night, the automaker said today, moving the company closer to a bankruptcy that could result in the U.S. and Canadian governments owning three-quarters of its stock.
The Obama administration is drafting a bankruptcy restructuring proposal that effectively would nationalize the border-straddling industrial colossus and put most of the rest of the company in the hands of a union trust fund.
Sources said the overhaul plan would require the U.S. government to lend GM about $30 billion on top of the $19.4 billion already invested, giving it the majority stake. Canada is preparing to lend about $9 billion for a smaller interest, the sources said.
These figures would total nearly $60 billion, making the GM bailout one of the largest corporate rescues since the current economic crisis began last year and one of the largest reorganizations in history.
The sources cautioned that the negotiations are continuing and the totals could change.
GM has edged closer to bankruptcy on two fronts over the last 24 hours. The automaker's bondholders rejected the company's request to forgo much of what they are owed in exchange for a small amount of stock, making it likely that their differences will be settled in court. Meanwhile, union leadership approved concessions aimed at protecting labor's interest whether a filing is necessary or not.
The bondholders, who are owed $27 billion, had been given a deadline of 11:59 p.m. last night to agree to a company offer under which they would drop their debt claims in exchange a 10 percent stake in the company. GM had asked that at least 90 percent of them agree to the deal. But the bondholders rejected the offer.
This morning, the automaker issued a statement saying its board "will be meeting to discuss GM's next steps in light of the expiration of the exchange offers."
The government is taking on the ownership role at GM reluctantly, officials have said, adding that it is not intended as a permanent situation. Nonetheless, for the foreseeable future, the United States will have broad power over the company, including the ability to appoint board seats.
In preparing GM for a trip to bankruptcy court, the U.S. government is following the path set by Chrysler, which is hoping to emerge from the process after a relatively short stay. Today, a federal bankruptcy judge is scheduled to consider a critical motion that would allow a revived Chrysler to be formed from the sale of most of Chrysler's assets to an entity led by Italy's Fiat.
Aside from the United States and Canada, which would together control about 72 percent of GM, the union's retiree health trust would hold a stake starting at 17.5 percent that could grow to 20 percent. The existing bondholders could end up owning about 10 percent of the company.
One source said that the ownership breakdown was fluid and subject to continuing negotiations before GM's expected bankruptcy filing Monday. Another person, who spoke on condition of anonymity because the discussions are private, said some paperwork could be submitted by the weekend.
As the corporate behemoth moved to the brink of bankruptcy yesterday, there was a flurry of activity among its stakeholders, including the United Auto Workers union as well as GM's bondholders. GM's obligation to UAW retiree health care has weighed heavily on the automaker as it has burned through cash. In 2007, the automaker committed $35 billion to the trust -- $20 billion in cash and $15 billion in other assets. The value of the assets has fallen to $10 billion because of the unstable market, according to a UAW document reviewed by The Washington Post.
In exchange for halving its cash contribution, GM will give the UAW-run trust 17.5 percent of common stock with warrants to push the stake to 20 percent, according to the document. The trust will also receive $6.5 billion in preferred shares and a $2.5 billion note, which will be paid in three cash installments through 2017. The trust fund plans to hold its stake until at least 2012.
"With a greatly improved balance sheet, as well as with significant restructuring of business operations, there is a realistic prospect that the stock in the new company will represent significant value in the future," the UAW document said.
The trust will take over retiree health-care costs beginning Jan. 1. It will have one member on GM's board of directors, who will be required to vote in accordance with the board's independent directors.
GM will continue to provide retiree medical benefits until the trust takes over. But those benefits would be cut.
"The Treasury Department insisted that the benefits be immediately reduced to reflect GM's difficult financial situation," said the document. The agreement is up for a UAW vote in coming days.
The union's cost-of-living increases, along with some holiday pay, were suspended. Yet UAW President Ronald A. Gettelfinger stressed that there would be no reduction in the membership's base hourly pay, health care and pensions.
"We were able to slow the import of vehicles coming from China and other foreign sources and put some of that work in two US plants originally schedule to close," he wrote.
The 14-page document said GM would take back five plants from its auto parts supplier Delphi, which is now in Chapter 11 protection. Some idled GM plants would also be put to work if demand returns.
Most of GM's hourly workers will receive another buyout and early retirement offer. Production workers will be offered $20,000, plus a $25,000 car voucher. Skilled employees will be offered $45,000 plus the vehicle voucher.
The biggest buyout package, for employees with at least 20 years of service, includes $115,000 plus the car voucher.
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Washington Post]
13th December 2008, 07:30
