GM Says U.S. to Own 72% Under Bankruptcy Plan

A new GM will be formed with the U.S. government possibly providing $50 billion.

Under a proposed bankruptcy reorganization that now has support of GM bondholders, the U.S. government would own 72.5% of General Motors, a regulatory filing showed May 28.

GM said the U.S. Treasury agreed to the plan to create a new company that buys the assets of the automaker and that bondholders who had rejected an earlier proposal "support the economic terms" of the new plan.

The filing said that the Treasury Department "has indicated to GM that if GM decides to seek relief under the US Bankruptcy Code and seek bankruptcy court approval for the sale of substantially all of its assets ... a new company sponsored by the US Treasury (New GM) would agree to acquire such assets."

The government could provide "in excess of $50 billion" to this reorganization that would be converted to stock, according to the GM filing with the Securities and Exchange Commission.

GM's survival plan had been in doubt earlier this week when holders of some $27 billion in GM bonds rejected a plan to swap that debt for 10% of the new company. But a new proposal by Treasury "provides incentives for GM's unsecured bondholders," giving them a potentially larger stake in the new firm. The bondholders would get 10% of the common equity of "New GM" and warrants that give them the right to purchase another 15% of the reorganized firm, according to the filing.

"Implementation of this proposal would result in a New GM with a healthy balance sheet, putting the new company on a clear path toward long-term viability and success," the automaker said.

The ad hoc Committee of GM bondholders said it supports the revised offer: "When contrasted with the alternative -- uncertain and costly bankruptcy court litigation .... it represents the best alternative for bondholders in the current difficult and dire situation."

Bondholders, who a month ago had proposed a deal that would give them 58% of the new GM, said that the 10% stake plus the opportunity to but 15% "gives the bondholders the opportunity to recover a greater portion of their original investment than was previously offered."

The new firm would wipe out a large part of the auto giant's debt, leaving GM owing some $17 billion excluding the warrants and special preferred shares that require dividend payments. The plan provides for a swap of a portion of the Treasury's $19.4 billion in loans and any other capital for the 72.5% stake, leaving a debt to the government of $8 billion.

Some 17.5% of the new firm would go to the trust fund that pays retiree benefits knows as a Voluntary Employee Beneficiary Association, or VEBA. The remaining 10% in the new firm would be held by "Old GM," which would be controlled by the bondholders.

Copyright Agence France-Presse, 2009

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