A General Motors (GM) bankruptcy filing is now certain after the car maker failed to persuade bondholders to trade their debt for equity in a new company, said lawyers and analysts.
The debt-for-equity swap offer by GM, the world's largest automaker until its 77-year reign ended last year, failed to win the required 90 per cent approval of bondholders by the time it expired last night.
The proposal was part of an effort by the Detroit-based automaker to cut its debt by $44 billion before a June 1st deadline in order to qualify for more bailout loans.
The formal decision on whether to file for bankruptcy protection is up to the GM board to decide and that meeting is later in the week, a GM spokeswoman said today, declining to disclose the timing of the session.
GM, following Chrysler into bankruptcy, has said it would use a court-protected reorganisation to launch a new company with just its viable assets, such as its Cadillac and Chevrolet brands.
The 100-year-old automaker, a victim of tumbling car sales and higher gas prices, has said it will stop making Pontiac models and sell its Hummer and Saturn units, while dropping as many as 2,400 US dealers by the end of 2010.
Its Saab Automobile unit is under the protection of a Swedish bankruptcy court, and its Opel unit in Germany is up for sale. Billions in Loans GM so far has taken $19.4 billion in US Treasury loans and was seeking billions more.
To qualify for the money, it had to meet government-imposed tests. It succeeded in reducing $20.4 billion owed to a union-run health-care fund, which consented to take 17.5 per cent of the new company's shares, plus preferred stock and debt.
The bondholder offer was designed to meet a second test.
President Barack Obama's spokesman said the administration's task force will continue to press for an accord among GM stakeholders until the June 1st deadline to qualify for more bailout loans. "The deadline is near but it's not passed yet," press secretary Robert Gibbs said.
Bloomberg