GM stares down bankruptcy barrel as deal rejected

May 28th, 2009 - 12:19 am ICT by John Le Fevre  

GM bankruptcy US car manufacturer General Motors (GM) is almost certain to fall into bankruptcy after it failed to win sufficient support from its bondholders for a debt for equity swap deal.

The announcement means the auto giant, recently the world’s largest motor vehicle manufacturer, is unlikely to meet a June 1 deadline imposed by Washington to show that it had made enough progress in restructuring to merit further support.

The company has already received $US19 billion dollars in federal funds to keep it afloat and had submitted a restructuring plan, which included the debt for equity swap, in a bid to secure more US government funds for a massive restructuring.

According to GM, its offer to swap bonds worth $US27 billion for a 10 per cent share of equity was less than what bondholders wanted.

The failure by GM to secure the deal led GM chief executive Fritz Henderson to say bankruptcy is “probable”, despite the company’s last-minute efforts to find an outside solution.

However, the beleaguered US manufacturing succeed in another aspect of its restructuring efforts, spinning of its European operations on Wednesday and transferring all holdings into German subsidiary Opel, which is to be placed in a trusteeship by the German government until a new owner is found.

President Barack Obama’s administration is already preparing to help GM reorganize while in bankruptcy, with a tentative plan giving the government a 70 per cent stake in the firm in exchange for another $US30 billion in funding. The Canadian government is also reported ready to pump in an additional $US9 billion dollars.

White House spokesman Robert Gibbs said on Tuesday that talks will continue until “right up against” the June 1 deadline.

Meanwhile, the US Bankruptcy Court in New York opened a hearing Wednesday on whether to approve the sale of Chrysler under a plan to give the ailing automaker a new start with Italy’s Fiat.

If approved, the fast-track plan could see a new look Chrysler emerge within days. However, the plan is being opposed by the company’s dealership owners, many of whom face being shut down, and its creditors.

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