Report: GM Set For June 1 Bankruptcy

General Motors Corp. plans to file for bankruptcy protection June 1, despite reaching a deal with bondholders to swap debt for stock, sources told Bloomberg Thursday.

Earlier Thursday, GM said a committee of bondholders had agreed to a sweetened deal proposed by the U.S. government to erase the automaker's unsecured debt in exchange for company stock.

The news came in a regulatory filing that spells out the Obama administration's game plan for what it hopes will be a speedy Chapter 11 bankruptcy reorganization that will leave the U.S. government as the dominant GM shareholder with a much smaller debt load.

The plan, laid out in an SEC filing, would give the government a 72.5 percent stake in a new GM, but the administration said it could cost taxpayers another $30 billion, reports CBS News correspondent Anthony Mason. Washington has already invested more than $19 billion to keep GM's motor running.

But people familiar with GM's plans said the automaker would still file for bankruptcy protection on Monday.

The government proposal is similar to the approach taken in the bankruptcy reorganization approach used by Chrysler Corp. Its plan to shed assets and sell control of a downsized carmaker to Fiat, aided by government financial assistance, could receive final approval from a bankruptcy court judge in New York before the end of the week.

With Chrysler and GM, the government is driving a hard bargain.

"They're providing the money. And they're the ones who are ultimately going to decide how that money's going to be spent," bankruptcy attorney Steve Jakubowski told Mason.

The government's goal for GM is to eventually return it to profitability, allowing it to eventually sell its shares. But the risks for taxpayers are daunting, with U.S. auto sales near their lowest level in 27 years.

The revised offer to the holders of $27 billion in unsecured GM bonds amounted to a take-it-or-leave-it ultimatum: Go along with what the government auto task force's proposal or be left holding the assets a new GM doesn't want - ones with presumably little value at all.

In addition to the 10 percent of the stock in a newly formed GM that was originally rejected by bondholders, the new offer would give them warrants to acquire an additional 15 percent stake at a deep discount. That would come only if they agree to support selling the company's assets to a new company under bankruptcy court protection.

The Securities and Exchange Commission filing said that if the bondholders don't agree to support the sale, then the amount of stock and warrants they get would be substantially reduced or eliminated.

Under the proposal, which has a deadline of 5 p.m. Saturday, GM would enter bankruptcy protection and its good assets would be separated from bad ones.

A United Auto Workers' retiree health care trust fund will get 17.5 percent and the old GM, effectively owned by the unsecured bondholders, would get a 10 percent stake.

The plan envisions the slimmed-down new GM, shorn of more plants and brands, would have $17 billion in long-term debt and $9 billion in debt-like preferred shares. That would represent a 61 percent decline from its existing debt load of about $67 billion.

Only $8 billion of the existing U.S. government loans would remain on the books; the remainder would be converted into equity of the new GM.

A bondholders committee and other large debtholders agreed to the deal but still called it unfair. They collectively hold about 20 percent of GM's unsecured debt.

"While the committee continues to remain troubled by preferential treatment that the UAW VEBA is receiving compared to the bondholder class - rejecting this offer in the expectation that the bondholders will do better in a litigated outcome was a risk the committee is unwilling to take," the committee said in a statement.

The deal would wipe out GM's $27 billion in unsecured bond debt, converting to equity a total of $50 billion in company debt.

GM's filing said that if the deal goes through, the new GM would emerge with a total of $17 billion in debt - $8 billion owed to the U.S. government, $2.5 billion to the UAW trust and $6.5 billion in mainly overseas and capital lease debt.

It was unclear what would happen to the GM's current $6 billion worth of secured debt, but the person familiar with the GM plan said the U.S. government will provide financing to operate the new company and for the old GM to be liquidated.

An Obama administration official said the holders of GM's $6 billion in secured debt would be fully repaid. The official did not want to be identified because the plans had not been made public.

Some analysts look at the probable bankruptcy as a chance for GM to remake itself.

"General Motors is not going away anymore then Chrysler is going away. But we are going to see a better, stronger, faster moving general motors. A better version of it's current self," Rebecca Lindland, of IHS Global Insight, told CBS News.

In a potential bankruptcy, GM would likely shed four of its brands - Pontiac, Saab, Hummer and Saturn - though the government has promised to back any warranties for those brands, reports CBS News correspondent Jeff Glor. That would leave four core brands for the automaker - Chevrolet, Cadillac, Buick and GMC.

Trading of GM shares was halted for a short time Thursday morning, but resumed to rise 6 cents, or 5.2 percent, to $1.21 in midday trading.

An Obama administration official said the agreement is an important step in GM's restructuring and said the government's auto task force "will continue efforts to help ensure that GM emerges from restructuring as a strong, viable company that can operate independent of government support."