A General Motors bankruptcy – the largest ever in US industrial history – now appears inevitable after the automaker failed to persuade enough bondholders to accept a debt-for-equity swap last night.
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GM bondholders had until midnight to trade US$27bn in debt for a 10% ownership stake in the reorganised company that US officials had said could emerge from a quick trip through bankruptcy court.
As the deadline passed early on Wednesday there was no immediate word from GM on how much debt the offer had succeeded in retiring and the US Treasury also had no immediate comment, Reuters reported.
GM’s bond exchange offer had been dogged by criticism since it was launched a month ago that it was an unfairly low payout made at the direction of US officials more sympathetic to the competing claims of GM’s unionised workers and retirees, the news agency said.
But the exchange had also been seen as GM’s last remaining hope to cut debt outside the kind of government-financed bankruptcy that has been under way for Chrysler since the end of April.
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By GlobalDataGM planned to detail the results of the debt exchange offer on Wednesday morning, spokeswoman Renee Rashid-Merem told Reuters.
The automaker’s board could also meet today to review options for the automaker that has been kept in operation since the start of the year with $19.4bn in emergency federal loans, representatives said.
The bondholder deal was running well short of the company’s goal and had attracted only a low single-digit percentage of the $27bn targeted as of Tuesday afternoon, Reuters said.
That was nowhere near the 90% support GM had set as a target to stave off bankruptcy, two sources familiar with the discussions told the news agency.
Separately, people involved in the effort to restructure GM under federal supervision said the Obama administration believed that the plan overwhelmingly rejected by bondholders was fair.
But the autos task force also remained willing to talk with bondholders after the expiration of the debt exchange deadline, the anonymous sources said.
Analysts told Reuters GM’s bondholders had tipped the company toward a near-certain bankruptcy that would rank as one of the largest and most complex reorganisations in US history.
“I think the exchange offer was really a transparent attempt to blame bondholders for the bankruptcy rather than to accept responsibility for years of mismanagement and failure to anticipate things that should have been understood,” Richard Tilton, a restructuring analyst at Covenant Review, was quoted as saying.
“I think the task force made that hurdle so high, they wanted them to go into bankruptcy, they see that as the solution,” independent auto industry analyst Erich Merkle said on Tuesday. “As long as they see that as the solution, there is not much that can be done,” Merkle said.
US national TV news broadcasts last night said a Chapter 11 filing now appeared inevitable.
Reuters’ sources said GM would likely file for bankruptcy some time between now and 1 June.
“I would say this is a sound rejection of an unsuitable offer,” Pete Hastings, a credit analyst at Morgan Keegan, told the news agency. “I have been saying for some time that this thing was dead on arrival and we were just waiting for the doctor to pronounce it dead. Now that’s happened.”
GM had said on Friday it expected to need another $7.6bn from the U.S Treasury after 1 June.
“The bondholders are not interested at all,” one of the sources told Reuters. “There is a feeling of resignation in the community. They’d rather fight it out in bankruptcy court than do anything at this point.”
A person familiar with Obama administration thinking on the matter told the news agency the administration was continuing to engage with bondholders to reach agreement.
In an interview broadcast over the weekend, Obama said he hoped GM and Chrysler would emerge from restructuring “leaner, meaner, more competitive.”
“Ultimately, I think that GM is going to be a strong company,” he said.
