GM bankruptcy expected before US markets open today

ERJ staff report (AN)

Detroit, Michigan (Reuters) -- General Motors and the US government finalized plans Sunday for the company to reorganize, setting the stage for America's largest-ever industrial bankruptcy and heralding a new and uncertain era for the No. 1 U.S. automaker.

GM will file for Chapter 11 bankruptcy protection today at the U.S. Bankruptcy Court in the Southern District of New York before markets open, according to sources with direct knowledge of the preparations. The Wall Street Journal said the filing would be at 8 a.m.; Bloomberg News said it would be before 8.

Al Koch, a managing director at advisory firm AlixPartners LLP, will be appointed chief restructuring officer at GM, a source familiar with the matter said.

U.S. President Barack Obama is expected to outline GM's next steps just before noon Eastern time.

But even as the 100-year-old firm cleared a major hurdle to a smooth passage through bankruptcy with approval of a debt-for-equity exchange, questions remained about the ability of the company to return to viability.

No. 3 U.S. automaker Chrysler LLC is nearing the end of a court-supervised restructuring in New York to cut debt and non-performing assets, as well as complete an alliance with Italy's Fiat S.p.A.

Symbolic victory

Concluding the debt-for-equity exchange was considered key to ensuring a smoother ride through the bankruptcy process.

Bondholders had until late Saturday to vote on the exchange, which would give them up to 25 percent ownership in a reorganized GM in return for $27 billion in debt.

According to a spokesman for an ad hoc committee of bondholders holding about 20 percent of GM's bonds, 54 percent of debt holders voted in favor.

The company and the Treasury Department declined comment on the exchange results, which do not ensure court approval but give the company an important symbolic victory that bankruptcy experts and analysts say will help GM's case.

"The warrants and the improved capital structure make for an improved recovery for bondholders," Barclays Capital analyst Brian Johnson said. "In terms of the bankruptcy process, we expect the likely bondholder assent to smooth the process."

Obama said in an interview with NBC aired over the weekend that the government was forced to take over GM in order to prevent a collapse that could have brought down other companies and further batter the recession-hit U.S. economy.

"My preference would have been to stay out of it completely," Obama said.

A week of deals

In the past week, GM has also concluded an amended agreement with the UAW under which the union will receive a 17.5 percent in a restructured company instead of $20 billion in cash.

The UAW also made concessions that some say mark a fresh blow to the once common, well-paid manufacturing jobs that created America's middle class.

Now that a Chapter 11 filing looks certain, it raises questions about what impact bankruptcy will have on GM's sales, whether proceedings could get bogged down and whether government involvement will help the automaker overcome its challenges of making and marketing better cars.

U.S. auto sales are already at their lowest level in almost three decades. May sales figures are due on Tuesday, and expectations are that while dealerships performed better than in April, automakers are again likely to report steep declines that reflect the U.S. economic slump.

GM has been losing market share since 1962, when it commanded 51.1 percent of U.S. sales. Its share through April of this year was 19.2 percent as it continued to suffer from a truck-dominated vehicle lineup and by a plunge in demand as credit tightened in 2008.

In late March, the Obama administration put the automaker on 60-day notice to restructure and clinch concessionary deals with its union and bondholders.

From Automotive News (A Crain publication)