General Motors to file for bankruptcy on Monday; will close 11 plants

June 1st, 2009 - 11:28 am ICT by admin  

WASHINGTON, D.C. (BNO NEWS) — General Motors will use section 363 of the bankruptcy code in an effort to reorganize the company and clear its multi-billion debt, the White House confirmed on Sunday evening.

On Monday, General Motors will announce it is closing 11 facilities and idle another three. The closures are expected to result in tens of thousands of layoffs across the company. To support the company’s restructuring plan, the government will provide the automaker with an additional $30.1 billion in federal assistance.

In exchange, the U.S. government will receive approximately 60% of equity in the new General Motors and about $8.8 billion in debt and preferred stock. Further, the Canadian and Ontario governments will lend another $9.5 billion to the company and receive about 12% of its equity in exchange. It will also receive approximately $1.7 billion in debt and preferred stock.

As earlier reported, bondholders representing at least 54% of General Motors’ unsecured bonds have agreed to exchange their portion of the company’s $27.1 billion in unsecured debt for a pro-rata share of 10% of the equity of the new General Motors, plus warrants for an additional 15%.

“The new GM will pursue a commitment to build a new small car in an idled UAW factory, which when in place will increase the share of U.S. production for U.S. sale from its current level of about 66% to over 70%,” the White House said.

GM says it will lower its breakeven point from 16 to 10 million annual car sales environment.

The UAW’s existing VEBA, an independent trust that will provide health care benefits for GM’s retirees – to which GM has a $20 billion obligation – will be replaced by a new VEBA that would be funded by a note of $2.5 billion that will be payable in three installments ending in 2017 and $6.5 billion in 9% perpetual preferred stock.

The VEBA will also receive 17.5% of the equity of New GM and warrants to purchase an additional 2.5% of the company.

GM will continue to honor consumer warranties under a Warranty Support Program and $361 million funded to provide a backstop on the orderly payment of warranties for cars that are sold during the current restructuring period. Additionally, those dealers that will not continue with GM will be offered an agreement to orderly wind down their operations over the next 18 months.

President Obama will address the nation at 11.55 a.m. EDT to provide more information on the bankruptcy filing. To read the complete details, click here to read a fact sheet released by the White House.

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