GM, bondholders reach tentative agreement

In a potential breakthrough that could allow General Motors to avert bankruptcy or emerge from it quickly, bondholders who hold a large percentage of the carmaker's $27 billion in debt tentatively accepted a new offer Thursday morning to restructure the troubled company. GM officials confirmed in a regulatory filing that a large group of bondholders has been offered and has accepted a deal sweeter than the one it rejected Tuesday. In a statement, GM said, "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 new deal would give bondholders a 10 percent stake in the company in exchange for converting the bonds they hold into new shares of a restructured GM. They'd have an opportunity to take an additional 15 percent ownership stake if certain market conditions permit. Earlier in the week, bondholders balked at a plan to give them 10 percent of the new GM, even after the Obama administration and the company agreed to scale back the United Auto Workers union's stake in a newly restructured company. Union workers originally were to get a 39 percent stake, and that was reduced to 17.5 percent. GM's filing Thursday confirmed that the U.S. Treasury initially would own 72 percent of the newly restructured company. GM has received more than $20 billion in taxpayer bailout money as it tries to survive a crisis brought on by the deep U.S. economic recession. The Obama administration already has forced out former GM Chief Executive Officer Rick Wagoner and has ordered deep changes in the automaker, including sharing the pain across stakeholders. Unions have been ordered to scale back health and welfare benefits, and bondholders will convert their bonds into shares of stock in the new company. Among the few who aren't taking a hit are GM's secured creditors, big Wall Street banks that are suffering their own existential crisis. Autoworkers are expected to ratify their new ownership stake in GM later Thursday, and bondholders have until Saturday to agree to the debt-to-equity conversion. The tentative agreement came after U.S. and German negotiators couldn't agree on a bridge loan to keep the German automaker Opel and GM's other European subsidiaries operating if the parent company files for bankruptcy. However, there are still two potential buyers for Opel, Fiat of Italy and the Canadian auto-parts maker Magna. GM is facing a June 1 deadline to reach a deal with stakeholders or enter into bankruptcy. With the major stakeholders now largely in agreement, the company either will avert bankruptcy or will enter it briefly in order to shed certain obligations. Thursday's tentative agreement with a large group of bondholders boosts the chances that if GM seeks Chapter 11 protection from its creditors, it will follow the smooth path enjoyed by Chrysler LLC, which is expected to emerge from bankruptcy within the next few weeks.