GM in "intense" preparations for bankruptcy: source
Tue Apr 7, 2009 7:19pm
NEW YORK/DETROIT (Reuters) - General Motors Corp is in "intense" and "earnest" preparations for a possible bankruptcy filing, a source familiar with the company's plans told Reuters on Tuesday.
A plan to split the corporation into a "new" company made up of the most successful units, and an "old" one of its less-profitable units, is gaining momentum and is seen as the most sensible configuration, said another source familiar with the talks.
If the plan goes through, the new GM would be expected to assume some previous creditor debt from bankruptcy proceedings, such as secured debt, said the second source, adding that GM bondholders were likely to lose substantial value in bankruptcy.
Certain GM dealer and litigation claims would also be hurt if the new company structure is used as part of a company bankruptcy, said the second source.
The sources requested anonymity because they were not authorized to speak on the record.
GM declined to comment.
Shares of GM fell almost 12 percent on the New York Stock Exchange to end at $2.00.
GM bonds were mixed in afternoon trading, with GM's benchmark 8.375 percent note up less than 1 cent on the dollar to 11.75 cents, yielding more than 70 percent, versus about 11 cents with a 75 percent yield on Monday, according to MarketAxess data. The bond had slipped in earlier trading.
Two other GM notes were slightly lower in late afternoon trading.
OPTIONS FOR GM
GM, operating on $13.4 billion of government loans since the start of the year, has until June 1 to complete a reorganization plan. The government has warned that the alternative would be bankruptcy.
The company is under pressure to cut unsecured debt by two-thirds, turn half its remaining payments into a union healthcare trust in the form of equity rather than cash, and reduce hourly wages and benefits to match those paid by foreign automakers.
Chrysler, owned by Cerberus Capital Management LP, is also facing possible bankruptcy. The automaker has until April 30 to complete an alliance with Italian automaker Fiat.
Moody's Investor Service said in a note dated Monday that it maintains its view for a 70 percent risk of bankruptcy for Detroit's three automakers given the difficulty of restructuring out of court.
GM Chief Executive Fritz Henderson has said the company prefers to restructure out of court but that it could go to court if needed.
Tue Apr 7, 2009 7:19pm
NEW YORK/DETROIT (Reuters) - General Motors Corp is in "intense" and "earnest" preparations for a possible bankruptcy filing, a source familiar with the company's plans told Reuters on Tuesday.
A plan to split the corporation into a "new" company made up of the most successful units, and an "old" one of its less-profitable units, is gaining momentum and is seen as the most sensible configuration, said another source familiar with the talks.
If the plan goes through, the new GM would be expected to assume some previous creditor debt from bankruptcy proceedings, such as secured debt, said the second source, adding that GM bondholders were likely to lose substantial value in bankruptcy.
Certain GM dealer and litigation claims would also be hurt if the new company structure is used as part of a company bankruptcy, said the second source.
The sources requested anonymity because they were not authorized to speak on the record.
GM declined to comment.
Shares of GM fell almost 12 percent on the New York Stock Exchange to end at $2.00.
GM bonds were mixed in afternoon trading, with GM's benchmark 8.375 percent note up less than 1 cent on the dollar to 11.75 cents, yielding more than 70 percent, versus about 11 cents with a 75 percent yield on Monday, according to MarketAxess data. The bond had slipped in earlier trading.
Two other GM notes were slightly lower in late afternoon trading.
OPTIONS FOR GM
GM, operating on $13.4 billion of government loans since the start of the year, has until June 1 to complete a reorganization plan. The government has warned that the alternative would be bankruptcy.
The company is under pressure to cut unsecured debt by two-thirds, turn half its remaining payments into a union healthcare trust in the form of equity rather than cash, and reduce hourly wages and benefits to match those paid by foreign automakers.
Chrysler, owned by Cerberus Capital Management LP, is also facing possible bankruptcy. The automaker has until April 30 to complete an alliance with Italian automaker Fiat.
Moody's Investor Service said in a note dated Monday that it maintains its view for a 70 percent risk of bankruptcy for Detroit's three automakers given the difficulty of restructuring out of court.
GM Chief Executive Fritz Henderson has said the company prefers to restructure out of court but that it could go to court if needed.
