Offer to bondholders fails; GM bankruptcy likely

WASHINGTON — General Motors Corp.'s last-ditch bid to avoid bankruptcy fell with a thud Wednesday as its bondholders overwhelmingly rejected a deal to swap their debt for equity in the company.

That offer was a central element to the company's efforts — guided by the federal government — to restructure outside of court. Without it the company appears almost certain to file a Chapter 11 petition by Monday.

With Chrysler already having sought bankruptcy protection, a GM filing will put two of the nation's three automakers into bankruptcy, a sad testament to the industry's painful decline.

It also will open a dramatically different epoch in GM's century-long history, one that will probably leave the U.S. government holding a majority position in the company, all but wipe out current shareholders, radically alter relations with its biggest union and leave American taxpayers with a substantially larger tab to clean up the mess.

Earlier this month, Chief Executive Fritz Henderson said the company would be forced to declare bankruptcy if it was unable to persuade its bondholders to surrender at least 90 percent of their $27 billion in debt. GM last month offered to swap 225 shares for every $1,000 in bonds, a deal many bondholders publicly criticized. In total, bondholders would get 10 percent equity in a restructured GM in exchange for $24 billion in bonds, a much less generous deal than that offered to the government and the United Auto Workers union in the restructuring process.

The exchange failed to attract the necessary approval from bondholders before it expired at midnight Tuesday.

Even as GM withdrew the debt exchange Wednesday, roughly 60,000 members of the United Auto Workers union employed by GM began voting on a new contract with the automaker. The vote will conclude tonight.

If approved, the contract will clear the way for the U.S. government to receive a stake of as much as 70 percent in GM. In return the government will provide the company with probably tens of billions of dollars in financing in addition to the $19.4 billion it already has lent GM.

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