General Motors moved one step closer to bankruptcy on Wednesday as bondholders failed to agree on a debt for equity swap. General Motors needed 90 percent of lenders to agree to the swap, but fell “substantially” short of that target.
According to The Detroit News, the proposed swap offered bondholders a 10 percent stake in the new General Motors in exchange for $24 billion in debt. The U.S. Treasury Department required GM to achieve at least a 90 percent take rate on the offer to sidestep bankruptcy, but fell well short of its intended target.
As a result of the failed swap, GM could file for Chapter 11 bankruptcy as soon as Monday. GM has already reached key agreements with unions in the United States and Canada, but needed to get bondholders onboard as well.
“The GM Board of Directors will be meeting to discuss GM’s next steps in light of the expiration of the exchange offers,” the Detroit automaker said in a statement.
Under the automaker’s proposed plan the U.S. government and UAW would take an 89 percent stake in the new company, leaving just a 10 percent slice for bondholders holding $24 billion in GM debt. In comparison, the federal government holds $19.4 billion in GM debt and would be taking a 71.5 percent cut of the new GM. However, GM’s stakeholders were reportedly seeking a 58 percent stake in the company, likely resulting in the swap’s failure.
