[vztrt]

Little bit more on the short story above.

http://business.theage.com.au/busine...0528-bnw2.html

GM hurtles toward bankruptcy as debt swap fails
May 28, 2009 - 6:33AM

General Motors is skidding toward bankruptcy after bondholders rejected a plan to swap a large portion of the troubled automaker's debt for equity in the firm.

GM said it failed to get enough participation in a plan to exchange $US27.2 billion ($35 billion) of its notes, which had been required under GM loan agreements with the US Treasury and the company's own "viability" plan.

GM was widely expected to file for bankruptcy protection ahead of a June 1 deadline imposed by the administration of President Barack Obama, which has provided the automaker with billions of dollars in emergency loans.

The rejection suggests a likely bankruptcy filing that some analysts say could be messier and longer than that of Chrysler, which appeared poised to emerge from court supervision as a new entity allied with Italy's Fiat.

Douglas Bernstein, a Michigan bankruptcy attorney who represents auto suppliers, said GM's fate rests on "the power and the desire of the US Treasury in having the transaction pushed through quickly".

But he argued that even if Chrysler emerges quickly from court, "it's not automatic in the case of GM".

Bernstein said a different judge may consider other matters and GM has numerous stakeholders: "The judge has to weigh all the parties' due process rights."

Moreover, he said there is no outside party willing to take over GM, compared with Chrysler, which would emerge as part of a partnership with Italy's Fiat.

Martin Weiss, president of Weiss Research, said of GM: "It's far larger than Chrysler, far more complex and far more likely to backfire on nearly all concerned."

GM, which was once the world's biggest company, would likely be the largest industrial bankruptcy in US history, presenting challenges.

"It is a completely different ballgame when you are looking at a company as geographically diverse as GM is," said Rebecca Lindland, an auto industry analyst at IHS Global Insight.

"We've never had a company this large declare bankruptcy."

The US government has provided $US19.4 billion ($25 billion) in emergency loans to GM as of now, and could provide additional funds to pave the way for a quick bankruptcy that could allow GM, like Chrysler, to shed debts and legacy costs.

Canada would also likely provide cash, giving the two governments a majority stake, according to a source familiar with GM negotiations.

The source said however that a GM bankruptcy "would be a much more complicated process than for Chrysler" and might not be as fast.

Under the plan for GM, the US Treasury would have a majority stake in GM, which the source said was unavoidable because "the company was in a position where it needed a huge amount of capital."

John Pottow, a bankruptcy specialist at the University of Michigan law school, said he believed GM would successfully come out of bankruptcy.

"I think that with the amount of US government support it is getting, GM is likely to reorganise successfully," Pottow said. "You'll have a smaller company but you'll have a company."

Some reports said the government would pump in another $US30 billion ($38.6 billion) or more to help GM survive, raising questions about whether taxpayers would be repaid.

Pottow said that "if the company reorganises and is valuable, the price will go up and GM will be able to pay that money back. The question is how long it will take."

The United Auto Workers union agreed to a significantly smaller stake in GM in exchange for job protections and other incentives, according to union sources.

The UAW agreed to accept a 17.5 per cent stake rather than the 39 per cent stake proposed in the viability plan GM presented to the US Treasury.

It was not clear where the remaining stake would be allocated, although it could be used to help sweeten a deal offered to bondholders.

AFP