GM Bankruptcy Looms After Debt Swap Fails

Largest Industrial Bankruptcy In U.S. History All But Certain After Bondholders Balk At Plan

(CBS/AP)  General Motors Corp. bondholders felt they deserved something like a 58 percent stake in the company in exchange for their billions of dollars in debt. What they were offered wasn't even close.

As a result, the largest industrial bankruptcy in U.S. history is now all but certain. The bondholder rejection virtually ensures GM will file for Chapter 11 bankruptcy protection within days.

"They said no. That's it. They tried. That's why they're going to have to file," said John Pottow, a professor at the University of Michigan who specializes in bankruptcy.

By next week, GM will be a government-owned company, reports CBS News correspondent Anthony Mason. A new restructuring plan would give taxpayers as much as a 70 percent stake in the new GM.

"Government's intervention here at this large a scale at a private company is certainly unprecedented," said Cliff Winston of the Brookings Institution.

The government, which has already extended nearly $20 billion in loans to GM, ordered the company to come up with a plan that 90 percent of its bondholders would agree to. But the government allowed it to offer only 10 percent of the company's stock. GM was forced to withdraw the offer Wednesday after it fell far short.

A person familiar with discussions between GM and the government told The Associated Press any bankruptcy filing would probably come around the government's Monday deadline for GM to finish restructuring or enter court protection. The person asked not to be identified because the talks are private.

To avoid bankruptcy, the government had said GM must shed debt, cut labor costs and close plants.

GM bondholders are owed about $27 billion, the largest chunk of GM's roughly $58 billion in debt. They were offered the 10 percent stake to wipe out the debt, well short of the 58 percent they wanted.

A GM bankruptcy would be the fourth-largest in U.S. history and the largest for an industrial company.

Mark Modica, who bought GM bonds and runs a Pennsylvania Saturn dealership, believes bankruptcy would be a disaster for the economy

"You hear about these green shoots," Modica told Mason. "And I feel that the GM bankruptcy right now is a giant lawn mower. You can forget these green shoots."

While a bankruptcy filing might stigmatize the automaker in the eyes of consumers, some analysts think GM still has a shot at future viability.

"If they come out of bankruptcy on the other side as a pretty strong company, they might be able to get past that," Katie Kerwin, of Auto Beat Daily, told CBS News.

Like its crosstown rival Chrysler, which was angling Wednesday for a judge's permission to sell most of its assets to a group headed by an Italian automaker, GM was pulled down by debt, high labor costs and a devastating sales slump.

The government has poured billions into the two companies, fearing the ripple effects of catastrophic job losses might push the economy into a depression. The pair employ more than 126,000 people in the U.S., and hundreds of thousands of others rely on the companies working for parts suppliers, dealerships and other associated businesses.

GM spokesman Tom Wilkinson said company's board would meet later this week to decide its next move. He would not reveal what percentage of bondholders accepted the debt-for-equity offer, but GM said it was "substantially less" than needed.

Meanwhile, Germany pressed for an independent future for General Motors Corp.'s Europe-based Opel unit. The foreign minister said "the lights must not go out" on Opel even as the parent company heads for bankruptcy.

Opel's supervisory board approved a plan to pool GM's European assets - including plants, sales operations and patents but excluding Sweden's Saab brand - for a new investor said Karin Kirchner, a spokeswoman for GM Europe.

GM would choose any new investor, but Germany would decide on whether a new owner would get further government assistance, and if so what kind.

Offering a glimmer of hope that GM might avoid bankruptcy, the United Auto Workers union agreed to take only a 20 percent stake in GM, down from the original plan of 39 percent.

Analysts speculated that the move would free up 19 percent of GM's shares to be used elsewhere, perhaps to sweeten the deal for bondholders. But that never happened, and now the U.S. government, which may have to commit billions more to GM's court-supervised restructuring, stands to become a majority owner.

Under the debt exchange plan announced by GM last month, bondholders were to get 225 shares of GM stock for every $1,000 they had in debt, a 10 percent stake. Current stockholders would end up owning just 1 percent of the company.

GM's biggest bondholders, mostly big banks and other institutional investors, have opposed the swap from the start. Smaller bondholders - individual investors like retirees and families - have complained about the terms, too.

Some analysts said GM's bondholders may be holding out for better terms in bankruptcy, where they would normally get up to 40 percent of their holdings back.

Many large investors also hold insurance policies known as credit default swaps that would reimburse them if GM goes under. That might be a better deal than battered GM stock.

For the bondholders, "If you're bullish on the prospects of the company, you might think that's a great deal," Pottow said. "If you're bearish on the prospects of the company, you might not think that's a great deal."

[eiddam]

Ibelieve the government ,under Bush, and now Obama, are working with the manufacturing companies , to force out the Unions, not just the Auto UAW, but also, Mail, teachers, medical workers, and all. No Unions, work when told, and how long, low pay. no health Ins. no sick leave, no respect from most companies. Just like in time long past. The wealthy far- far above the middle, and the poor, far below the Middle.

[rwsmith29456]

I hate to say 'I told you so" and I hate even more to be right in this case but American car companies started digging their own graves around 1970. If they had built the slightest bit of integrity and customer satisfaction they would have had a slump for the recession, but rebounded as soon as it was over because Americans will be buying cars again. American car companies are so far gone they couldn't even compete with Yugo if they had wanted to. And it didn't happen overnight.

[armyoftwelve]

Unbelieveable. : (

[hedda4]

trmthislife1 The apartments would have to be for Rick Wagner and his Friends because a UAW member could not afford a single room apartment in that Waste Of Stock Holder Money.

[truthislife1]

Ther HQ would make some cool apartment building.

[hedda4]

InternetRosebud Please buy UNION made Crying Towels.

[InternetRosebud]

Canada is now facing a $50 billion deficit, and there is a huge stink here about it. Our Finance Minister has said that part of this deficit is due to setting money aside for GM & Chrysler "loans" (haha, read "bailout"). The autoworkers' union (CAW) of course is whining about all the "concessions" they've had to make, a result of their greediness over the years due to increased wages, health benefits, and pensions. They think they are royalty. They practially ran their employers into the ground. I hope both GM and Chrysler go down into the bankruptcy abyss and take their darned union down with them.

[hedda4]

GrabandGo Obama did not fail in extending your Unemployment benefits.

[hedda4]

My comment was for Armondb.

[hedda4]

Really, you belive that none of the high debt came from the huge skyscraper for the corporate headquarters, the many corporate jets, the millions in execuitive salaries, golden parachutes ,pensions ,and bonuses, the thousands spent for corporate power lunches daily? You sound like a person who has never belonged to a UNION to be informed of the Corporate Greed. UAW members at the big three hover on the verge of the poverty threshhold in this country, you as a floor sweeper are in the the depths of poverty so I see your responcse is typical of someone who has little knowledge of organized labor and has never had a good UNION job. I watched as the MAYTAG CORP was led down the same trail by wasteful spending and mismanagement. UAW members wave the FLAG because the are proud of the USA . We have become a second class country by sticking our noses in the Middle East were it did not belong not for building World Class AutoMobiles. The money Your pal George Bush wasted in Iraq could have bailed out every person in this Country. So you drive your forgine car to your lousy job and frown on the STARS AND STRIPES. Maybe you should educate yourself on Unions before bashing the least of the BIG THREES problems. Happy Sweeping.