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GM fails to strike last-ditch share deal

A GENERAL Motors Corp bankruptcy filing seemed inevitable after a rebellion by its bondholders forced it to withdraw a plan to swap bond debt for company stock yesterday.

GM has until next Monday to complete a government-ordered restructuring that includes debt reduction, labor cost cuts and plant closures. But a bankruptcy reorganization is likely after the company said its offer to exchange US$27 billion in unsecured debt for 10 percent of the company's stock had failed. GM has received US$19.4 billion in federal loans.

GM shares lost 16 US cents, or 11.1 percent, to hit US$1.28 in premarket trading.

John Pottow, a professor at the University of Michigan who specializes in bankruptcy, said GM evading bankruptcy now is almost impossible.

"They said no. That's it. They tried. That's why they're going to have to file for bankruptcy," Pottow said.

GM spokesman Tom Wilkinson said the board will meet later this week to decide its next move. He would not say if the company would soon file for bankruptcy protection, nor would he reveal what percentage of bondholders took the offer.

In a statement issued yesterday, the company said: "The principal amount of notes tendered was substantially less than the amount required by GM to satisfy the debt reduction requirement under its loan agreements with the (United States) Department of the Treasury."

The Obama administration has said it would only provide more funds if 90 percent of the bondholders, as well as unionized workers, agreed to concessions that substantially reduced GM's costs.

GM also said it canceled meetings yesterday with holders of notes that were not sold in US dollars. The statement said the meetings were to discuss amendments to the debt-for-equity offers, but it did not specify what the amendments were.

There was a small hope on Tuesday that GM could avoid a bankruptcy filing when the United Auto Workers union disclosed that it would take a 20 percent stake in GM - down from the original plan of 39 percent. That seemingly freed 19 percent of the Detroit-based company's shares to sweeten the pot for its recalcitrant bondholders.

But because the bondholder deal did not go through, the equity freed by the UAW deal now apparently will go to the US government, which may have to commit billions more for GM's restructuring.


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