The Only Question: What Day Will GM File for Chapter 11?

By Michelle Krebs May 27, 2009

By Michelle Krebs

GM logo - 119.JPG DETROIT -- About the only question regarding a General Motors Chapter 11 bankruptcy filing that remains is what day it'll be filed.

GM announced Wednesday morning that bondholders, who had until midnight, to trade $27.2 billion in debt for a 10 percent stake in the restructured GM, had rejected the automaker's offer. GM confirmed that the number of bondholders who agreed to the deal "was substantially less" than the amount required by the U.S. Department of Treasury.

Indeed, Reuters reported Tuesday the approval was running in the low single digits.

Seemingly set up for failure in order to force GM into Chapter 11, the government had required a 90 percent approval rate, a ridiculous level to obtain on even the most benign shareholder proposal at a typical annual meeting.

From the start, GM's bondholders objected to what they perceived as an unfairly low payout -- 10 percent of the new GM in exchange for $27.7 billion in bonds, particularly compared with 17 percent of the company the United Auto Workers' will get in exchange for some of the $20 billion in cash GM owes the union's retiree health-care fund.

GM said Wednesday morning its board of directors would meet to discuss next steps.

GM and President Obama's auto task force, which is actually calling the shots, could sweeten and extend the offer.

Or, as he did with Chrysler's bankruptcy filing, President Obama could again use bondholders -- which he called "speculators" in Chrysler's case -- as the whipping boy for forcing GM into bankruptcy. The president can conveniently pit the bondholders against union workers, who helped him get elected and are expected to ratify a concessionary contract by a wide margin quickly.

Another obstacle fell Tuesday when it was revealed GM's secured lenders, which include banks such as Citigroup and J.P. Morgan Chase, would be re-paid the $6 billion they are owed.

GM will file for Chapter 11 bankruptcy by June 1. Whether it is Wednesday, Thursday, Friday or Monday remains the only question.

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