OBAMA PLAN: GM BOND HOLDERS TO GET STOCK (REUTERS)

EXCLUSIVE-UPDATE 3-GM readies all-equity offer for debt-sources
Sat Apr 18, 2009 1:30am BST



* Equity conversion for bondholder, UAW debt-sources

* Offer targets $48 bln of debt in equity exchange-sources

* Treasury could convert its own loans to GM stock-sources (Adds analyst comment)

By Soyoung Kim and Emily Chasan

DETROIT/NEW YORK, April 17 (Reuters) - The Obama administration has directed General Motors Corp (GM.N) to prepare a new restructuring plan that would pay off bondholders and the automaker's major union in stock in exchange for $48 billion in debt, people briefed on the plan said on Friday.

The U.S. Treasury, which has provided $13.4 billion in emergency funding to keep GM operating since the start of the year, has indicated that it could also convert those taxpayer-backed loans into GM stock, the sources told Reuters.

GM, which is working to complete a restructuring that could include a bankruptcy filing, plans to make the new proposals to bondholders and the United Auto Workers union within the next two weeks, the sources said.

The sources asked not to be identified because of the confidential nature of the talks between the automaker and President Barack Obama's autos task force, which is charged with retooling the U.S. auto industry.

GM and UAW representatives could not be immediately reached for comment. A Treasury spokeswoman had no comment.

The proposals emerged after two weeks of intense talks between the autos task force, headed by former investment banker Steve Rattner, and GM executives in Detroit.

The stock-based payout to GM's major union and its bondholders would represent much deeper concessions for both groups than the terms they had been offered under the GM bailout loans approved by the Bush administration.

"The task force was clear this was the best way for GM to achieve success going forward," said one of the sources.

Under the terms of its former restructuring plan, GM had aimed to cut its roughly $28 billion of bond debt by two-thirds and convert half of the remaining $20 billion it owes to its retiree health care fund in equity, rather than cash.

But the autos task force rejected that plan, saying GM needed to cut more debt from its balance sheet in order to be a profitable company.

It was not clear what specific terms the UAW would be offered, but both people briefed on the plan said the union's higher payout relative to bondholders would be maintained.

An equity-based debt exchange would make the union, the U.S. government and GM's existing bondholders all major stockholders in the recapitalized automaker.

Peter Kaufman, president of investment bank Gordian Group LLC, said GM bondholders would only agree to the terms of the deal under discussion if they feared they would do worse without such an agreement headed into a bankruptcy for GM.

"I continue to maintain that any deal that happens outside bankruptcy will result in an nonviable GM," he said. "Why would bondholders take this deal? Only if they feared that a worse deal would ensue in Chapter 11."

TWO-TRACK APPROACH

GM Chief Executive Fritz Henderson, who assumed the top job in late March when the Obama administration ousted his predecessor, Rick Wagoner, told reporters on Friday that GM management had spent the past two weeks working with U.S. officials on a revised business plan.

That plan, which will include more job cuts and plant closures, will be shared with bondholders and the union as talks on the planned debt restructuring intensify in coming weeks, he said.

Henderson said it was still feasible for GM to avoid bankruptcy, but said the automaker was also working on detailed plans for a filing if it is forced to take that route.

"From the perspective of bondholders and the union, equitizing their debt would heighten the need for GM to have a viable business plan and a management team to execute on it," Gordian's Kaufman said.

Earlier, a person familiar with the plans of a committee representing GM bondholders said the creditor group was willing to make "deep concessions" if GM can produce a viable business plan and get equal sacrifices from other stakeholders. [ID:nN17347408]

The talks between GM and the UAW and between the automaker and its bondholders have been largely stalled since February. Those negotiations have played out in parallel because both groups are negotiating an unsecured claim under the threat of bankruptcy.

The UAW, which has made a series of concessions to GM since 2005, has defended its proposed higher payout ratio of 50 percent versus roughly 33 percent for bondholders as justified by its prior actions.

The union agreed to create a trust -- known as a Voluntary Employee Beneficiary Association -- as the centerpiece of a ground-breaking 2007 contract intended to slash GM's costs. (Reporting by Soyoung Kim and Emily Chasan; writing by Kevin Krolicki; editing by Leslie Gevirtz, Richard Chang)

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