General Motors says that it has reached a deal with some of its major bondholders that would see them acquiring a larger stake in the reorganized automaker in exchange for forgiving some of the automaker’s debt. The agreement essentially sets the path for GM to file for bankruptcy.
The GM proposal requires bondholders to forgive about one-fifth of GM’s $27 billion debt in exchange for a 10 percent share in the restructured, post-bankruptcy GM tentatively referred to by the automaker as “New GM.” To sweeten the deal, GM has offered its bondholders warrants to receive an additional 15 percent of the company in exchange for helping facilitate a speedy bankruptcy sale process. News reports indicate that an influential group representing 20 percent of GM’s shareholders have agreed to the deal.
“The allocation of 10% of common equity in the new GM, plus the opportunity to participate in the upside of the company through warrants to purchase 15% of the fully diluted equity in the new GM, gives the bondholders the opportunity to recover a greater portion of their original investment than was previously offered,” said a spokesman for the largest bondholder group.
The bondholders have been given until 5 pm EDT on Saturday to decide whether to accept the deal that could give them up to 25 percent of New GM. If the bondholders do not agree, GM said in a statement that their common equity and warrants “would be substantially reduced or eliminated.”
GM is hoping for a quick bankruptcy process akin to the one Chrysler is currently going through.
Should GM file for bankruptcy – which seems all-but-certain – it would be the largest-ever bankruptcy for an industrial company in the United States.
