Financial Times: GM deadline nears

GM fights to avoid bankruptcy protection
By Julie MacIntosh and Nicole Bullock in New York and John Reed in Detroit and Bernard Simon in Toronto

Published: February 9 2009 19:37 | Last updated: February 9 2009 23:43

General Motors is working to convince key stakeholders to help it avoid the need to seek bankruptcy protection but, because such an effort would probably require more government money, its most critical task will be addressing the US Treasury’s concerns over the terms of its investment.

GM must present a plan proving its long-term viability to Congress by next Tuesday as a condition of the $13.4bn emergency bridge loan it was granted in December.

Several sets of negotiations are taking place simultaneously. They revolve around GM’s proposal to swap up to two-thirds of its debt for equity, and fresh concessions from the United Auto Workers, including the financing of a new union-administered healthcare fund.

Only advisers to the various parties are currently involved in the talks, which are expected to centre on due diligence issues for the next day or two, one person familiar with the negotiations said.

The US government has the power to either endorse GM’s plans or push it into bankruptcy and the US Treasury’s decision to hire advisers Cadwalader, Wickersham & Taft, Sonnenschein Nath & Rosenthal and Rothschild suggest it may be toughening its stance.

“The government is the biggest stakeholder here,” one person close to the matter said. “Unless they agree the plan is viable and they consent, the debt becomes due.”

If the government gives GM additional funding, the structure and terms of both its old and new investments could come up for debate, including whether taxpayers’ interests should come before those of current debtholders.

The government’s role as stakeholder reduces GM’s options. But it also gives it more weight in negotiations with unions, auto dealers and bondholders.

“The carrot is, this is in everybody’s best interest,” said Don Workman, a bankruptcy lawyer at Baker & Hostetler LLP. “The stick is, they’re saying that if we don’t do this consensually, GM and Chrysler will go into bankruptcy court and the judge will prime you.”

Separately, GM is negotiating with bankrupt Delphi, its largest supplier, to take over some of Delphi’s manufacturing plants, a person briefed on the talks said.

The move could give GM more flexibility in its negotiations with the United Auto Workers, the labour union.

Bondholders said their talks with GM were ongoing. The company’s long-term bonds were quoted at their low of 13 cents on the dollar. In an indication of the severity of the situation, the same bonds were quoted at around 80 cents a year ago.

Copyright The Financial Times Limited 2009