GM Readies for BankruptcyAuto maker General Motors is preparing for a possible bankruptcy filing, according to sources near the company. GM is seeking to get concessions from its creditors and unions that will allow it to avoid bankruptcy. President Obama and the Treasury Department's June 1 deadline mean that bankruptcy preparations must be made.
If GM goes bankrupt, it would be the largest industrial company to ever do so. GM owes about $28 billion to holders of its unsecured debt. It is asking creditors to agree to take an equity stake in the company in return for reducing that debt by at least two thirds.
An ad hoc committee representing GM bondholders has already objected to this proposed idea because of the uncertain value of GM's stock in the future.
Reports about bankruptcy preparations at GM have not changed creditors' views. So far there have been no formal talks between the bondholders and the company since Obama's deadline was set last week, but sources say the committee is eager to hold negotiations and avoid GM going into bankruptcy.
The auto task force overseeing $13.4 billion in federal loans GM has already received declared last month that neither the company nor its competitor, Chrysler LLC, were viable under turnaround plans the companies submitted Feb. 17.
Chrysler was given only 30 days to reach a new alliance with Italian automaker Fiat. GM was given 60 days to get creditors to agree to swap debt for equity, and to win further concessions from the United Auto Workers union. The feds also pushed out GM's Chairman and CEO Rick Wagoner. Wagoner stepped down last week.
New GM CEO Fritz Henderson said at his first press conference last week that he would not have taken the job as CEO if he wasn't willing to take the company through the bankruptcy process, although he said he would prefer to reorganize the company outside of bankruptcy court.
Henderson has also stated GM would not wait the full 60 days to file for bankruptcy if it couldn't make deals with its creditors and unions.