General Motors debt deal to give government majority stake

Bankruptcy seen as likely if bondholders block plan

The US government will emerge as the majority shareholder in General Motors, the nation's largest carmaker, under a "take it or leave it" financial restructuring plan sprung on its bondholders yesterday.

Holders of $27bn (£18bn) of GM debt were asked to swap that investment for a 10 per cent equity stake, or face the business being put into bankruptcy – but the company's future looked more uncertain than ever last night after the committee representing them called the proposal "blatantly unfair".

Last month, the Obama administration rejected GM's more modest turnaround plans, saying it wasn't enough to make the company viable, and it fired then chief executive Rick Wagoner. So yesterday, the company promised more job cuts and factory closures, a reduction in its dealership network, and the scrapping of its historic Pontiac brand.

The centerpiece of the proposal, though, is a financial restructuring aimed at easing GM's crippling debt burden. Under the new plan, the government, which has been funneling taxpayer money into the company to keep it afloat since last December, is being asked to hand over $11.6bn more on top of the $15.4bn loaned so far, and then to swap half that money into shares.

And unions, too, are being asked to accept some shares instead of just cash to cover the cost of future pensions and healthcare benefits for workers. The employee trust, from which those benefits will be paid, will emerge as the second largest shareholder after the US government. Existing shareholders will end up with less than 1 per cent of the company. "Our objective here is to create a strategy where we can win, not simply survive," said Fritz Henderson, who was promoted to chief executive last month. "We need to have a more stable and sustainable business model, because, candidly, we only want to do this once."

However, it is far from certain that the bondholders would agree to one of the biggest debt-for-equity swaps in history. To succeed, GM will need the agreement of 90 per cent of its bondholders, who range from individuals, through "vulture" funds that specialise in trading distressed debt, in to some of the largest fund managers in the world. Mr Henderson said he thought bankruptcy was "more likely".

A committee representing around half the value of GM's bonds damned the proposal last night.

"The current offer is neither reasonable nor adequate," a spokesman said. "Both the union and the bondholders hold unsecured claims against GM. However, the union's [employee benefit trust] would receive a 50 per cent recovery in cash and a 39 per cent stake in a new GM for its $20bn in obligations, while bondholders, who own more than $27bn in GM bonds and have the same legal rights as the unions, would only receive a mere 10 per cent of the restructured company and essentially no cash."

The company also still has to get a firm agreement to their parts of the bargain from the United Auto Workers (UAW) union and from the US government, which has been working closely with GM on its plans and its negotiations.

Although the Obama administration stopped short of endorsing the new restructuring plan, a spokesman called it an "important step". He said: "The interim plan ... reflects the work GM has done since 30 March to chart a new path to financial viability. We will continue to work with GM's management as it refines and finalises this plan."

The carmaker has a 1 June deadline for presenting a financial restructuring plan that will help it weather the most serious downturn in car sales since the Great Depression. GM's talks with the UAW are still going on, the company says, but employees, particularly in its native Detroit, are already bracing for major and painful changes.

The company current employs 61,000 workers at 47 plants in North America, which it will cut to 40,000 at 34 plants by the end of next year, according to the revised plan unveiled yesterday. That is 7,000 more job cuts than was envisioned in the first restructuring plan which was rejected by the government. The company also said it would phase out its Pontiac brand by the end of next year, while Hummer, Saturn and Saab will be sold or shut down by the end of this year.

Start your day with The Independent, sign up for daily news emails
News
Britain's opposition Labour Party leader Ed Miliband (R) and Boris Johnson, mayor of London, talk on the Andrew Marr show in London April 26
General electionAndrew Marr forced to intervene as Boris and Miliband clash on TV
News
peoplePair enliven the Emirates bore-draw
Arts and Entertainment
tvPoldark episode 8, review
News
United States President Barack Obama, right, uses actor Keegan-Michael Key from Key & Peele to play the part of 'Luther, President Obama's anger translator'
video
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Treasury Assistant - Accounts Assistant - London, Old Street

£24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...

Ashdown Group: Business Analyst - Financial Services - City, London

£50000 - £55000 per annum: Ashdown Group: Business Analyst - Financial Service...

SThree: Trainee Recruitment Consultant

£18000 - £23000 per annum + OTE £45K: SThree: At SThree, we like to be differe...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is the o...

Day In a Page

General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

Chuka Umunna: A virus of racism runs through Ukip

The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
Yemen crisis: This exotic war will soon become Europe's problem

Yemen's exotic war will soon affect Europe

Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
Marginal Streets project aims to document voters in the run-up to the General Election

Marginal Streets project documents voters

Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

The real-life kingdom of Westeros

Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
How to survive a social-media mauling, by the tough women of Twitter

How to survive a Twitter mauling

Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

At dawn, the young remember the young

A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

Follow the money as never before

Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

Samuel West interview

The actor and director on austerity, unionisation, and not mentioning his famous parents
General Election 2015: Imagine if the leading political parties were fashion labels

Imagine if the leading political parties were fashion labels

Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence
Public relations as 'art'? Surely not

Confessions of a former PR man

The 'art' of public relations is being celebrated by the V&A museum, triggering some happy memories for DJ Taylor
Bill Granger recipes: Our chef succumbs to his sugar cravings with super-luxurious sweet treats

Bill Granger's luxurious sweet treats

Our chef loves to stop for 30 minutes to catch up on the day's gossip, while nibbling on something sweet
London Marathon 2015: Paula Radcliffe and the mother of all goodbyes

The mother of all goodbyes

Paula Radcliffe's farewell to the London Marathon will be a family affair
Everton vs Manchester United: Steven Naismith demands 'better' if Toffees are to upset the odds against United

Steven Naismith: 'We know we must do better'

The Everton forward explains the reasons behind club's decline this season
Arsenal vs Chelsea: Praise to Arsene Wenger for having the courage of his convictions

Michael Calvin's Last Word

Praise to Wenger for having the courage of his convictions