GM Makes New Offer to Bondholders

The new offer hinges on the automaker's filing for bankruptcy.

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After negotiations with its bondholders fell through yesterday, General Motors extended them a new offer. The new plan, however, hinges on the automaker's filing for bankruptcy.

Currently propped up by $19.4 billion in federal loans—the latest installment, $4 billion, came just last week—the GM has until Monday to implement a sweeping restructuring plan. Without that, the Obama administration has said it won't give the automaker any more federal funds. But GM's bondholders, key in agreeing to concessions that would reduce the company's costs, would not be wooed. They resisted a swap that would give the bondholders 10 percent of company stock, forcing GM to withdraw the offer yesterday.

But the company has a new plan, disclosed in today's filing to the U.S. Securities and Exchange Commission. Now, GM plans to offer bondholders 10 percent of its stock and warrants to buy up to 15 percent after the company restructures under Chapter 11. If bondholders don't get on board, GM said, their amount of warrants and stock will be "substantially reduced or eliminated." In one promising sign, a group of bondholders has already come out in support of the new deal.

While bankruptcy is something that the company has been trying to avoid for months, many are hopeful that it can follow the path of Chrysler, whose April 30 filing has moved swiftly. Another note of potential optimism: Chrysler's car sales to individuals have fallen just slightly more from last year than have those in the overall market. Its sales are down 40 percent this month from last year, compared with the market's 35 percent decline.

But a GM bankruptcy would hardly mean that the U.S. government is home free. A Chapter 11 filing could mean that the Treasury would have to lend an additional $30 billion to GM, on top of a nearly $20 billion loan. After a restructuring, the government could wind up owning a 72.5 percent share in GM. The White House has said that it doesn't want to have any part in the company's daily operation. Even so, the government's enormous stake in the corporation may make it hard to avoid.