General Motors has agreed concessions with the United Auto Workers (UAW) union and is now racing against the clock to persuade bondholders to eliminate US$27bn in debt and avoid a bankruptcy filing.
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The New York Times said GM had until Tuesday to persuade thousands of bondholders to agree to swap their debt for equity, which would fulfil its last significant requirement for restructuring ordered by president Obama, but there appeared to be little chance that the required 90% of bondholders would agree to its terms, making the prospect of bankruptcy increasingly likely.
Analysts told the paper the UAW deal with GM, which followed similar concessions to Chrysler, would increase pressure on bondholders to accept the company’s offer.
A coalition of small bondholders protested the terms of GM’s offer in Washington on Thursday, the paper noted. Larger, institutional bondholders have also opposed the deal, which calls for them to receive 225 shares of GM stock in exchange for each US$1,000 worth of debt.
GM spokesman Greg Martin told the New York Times the company had made no decision on whether to extend the exchange offer beyond the Tuesday deadline.
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By GlobalData“We have made it clear that our viability requires us to take these actions to restructure our operations and reduce the liabilities and debt on our balance sheet,” Martin said.
The paper said details of the UAW agreement with GM were being withheld pending a ratification vote by 61,000 union workers in the United States, which was expected to take place next week.
The paper noted the deal did include financing the retiree trust though sources close to the talks were quoted as saying the union agreed to allow GM to finance half of its future retiree health care costs – estimated at $20bn – with company stock.
The Obama administration reportedly hailed the agreement as an important step in GM’s comeback plan.
The paper said GM would make one last push to persuade its bondholders to take equity for their debt.
The automaker’s president, Fritz Henderson, has said repeatedly that bankruptcy is a “probable” outcome because of the difficulty in persuading 90% of the bondholders to agree to its restructuring terms.
