- Joined Jan 30, 2007
May 28 (Bloomberg) -- General Motors Corp., the world's largest automaker until its 77-year reign ended in 2008, plans to file for bankruptcy protection on June 1 and sell most of its assets to a new company, people familiar with the matter said.
GM's path will be smoothed by an accord today giving some of its biggest bondholders an equity stake in the reorganized automaker. The U.S. Treasury is requiring that an unspecified percentage of debt holders accept the terms by 5 p.m. New York time on May 30, Detroit-based GM said in a regulatory filing.
"If bondholders agree to this up front, this would essentially be a prepackaged bankruptcy," said Shelly Lombard, an analyst with New York-based bond-research firm Gimme Credit LLC. "GM could exit Chapter 11 faster."
Battered by almost $88 billion in losses since 2004, GM fell short in a bid to cut debt by $44 billion under a U.S.-set June 1 deadline to restructure outside court. The 100-year-old automaker seeks to rebuild around assets such as the Cadillac and Chevrolet brands as it follows Chrysler LLC into bankruptcy.
The people familiar with GM's plans didn't specify where the automaker might make its Chapter 11 filing. They asked not to be identified because the details aren't public.
Vice Chairman Bob Lutz, while not confirming GM's intentions or a possible bankruptcy venue, said any court restructuring would be quick.
'Pay It Back'
"We intend to get in and out very soon," he said today at an Automotive Press Association luncheon in Detroit. "The U.S. government wants its money back, and our plan is to pay it back as quickly as possible. The U.S. government doesn't want to own auto companies."
The bankruptcy probably would last 60 to 90 days, said an Obama administration official who asked not to be identified because the talks are private. The Treasury will finance the trip through bankruptcy with about $50 billion, which includes $19.4 billion in current borrowing, GM said in a statement.
GM's bankruptcy will be the third-biggest in U.S. history after Lehman Brothers Holdings Inc. and WorldCom Inc., based on GM's reported global assets of $91 billion and total liabilities of $176.4 billion as of Dec. 31. Chrysler, which sought court protection on April 30, listed assets of $39 billion.
Going to court would end the suspense for GM, which said it expected to declare bankruptcy after failing to get enough support for a debt-for-equity exchange on $27.2 billion in unsecured bonds.
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