GM says bankruptcy now likely

GM has until Monday to complete a government-ordered restructuring that includes debt reduction, labor-cost cuts and plant closures.

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May 28, 2009 08:42
1 minute read.

 
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A General Motors Corp. bankruptcy filing seemed inevitable after a rebellion by its bondholders forced it to withdraw on Wednesday a plan to swap bond debt for company stock. GM has until 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 $27 billion in unsecured debt for 10 percent of the company's stock had failed. GM has received $19.4b. in federal loans. John Pottow, a professor at the University of Michigan who specializes in bankruptcy, said GM evading bankruptcy now would be almost impossible. "They said no. That's it. They tried. That's why they're going to have to file for bankruptcy," he said. GM spokesman Tom Wilkinson said the board would meet later this week to decide its next move. In a statement issued Wednesday, 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 US Department of the Treasury." The Obama administration has said it would only provide more funds if 90% of the bondholders, as well as unionized workers, agreed to concessions that substantially reduced GM's costs.

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