Thursday, May 28, 2009

It's Official: GM To File Bankruptcy On June 1

. Thursday, May 28, 2009

By stockOzone team

General Motors Corp., the troubled US automaker, plans to file for bankruptcy protection on June 1 and sell most of its assets to a new company, Bloomberg reported late on Thursday. Early on Thursday, the Treasury Department and a committee of major bondholders at General Motors have reached a deal that could give creditors a larger stake in GM than previously offered.The agreement, revealed in a Securities and Exchange Commission filing by GM would essentially give the bondholders 10% of the company but also give them the rights to buy an additional 15%of the company's stock at a low price.

“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.

“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 $19.4billion 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.

Disclosure: Author does not own any of the stocks discussed here.

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