GM secures US bankruptcy deal

May 28, 2009

, WASHINGTON, May 28 – Fallen US auto giant General Motors pulled back from the brink on Thursday, winning government and bondholder support for a new restructuring plan while Chrysler waited for a court to decide its future.

GM, kept afloat so far with 19 billion dollars in US taxpayer money, had been facing a deadline on Monday to come up with an agreed reorganization and looked to be in serious trouble when bondholders balked earlier this week.

But on Thursday, it said a new plan, this time endorsed by bondholders, would see the government hold a 72.5 percent stake in return for possibly more than 50 billion dollars of fresh funding.

The Treasury Department "has indicated to GM that if GM decides to seek relief under the US Bankruptcy Code and seek bankruptcy court approval for the sale of substantially all of its assets… a new company sponsored by the US Treasury (New GM) would agree to acquire such assets," it said.

The government could provide "in excess of 50 billion dollars" for this reorganization that would be converted to stock, a GM filing with the Securities and Exchange Commission said.

GM\’s survival was thrown into doubt earlier this week when holders of some 27 billion dollars in GM bonds rejected a plan to swap that debt for 10 percent of the new company.

A new proposal by the Treasury "provides incentives for GM\’s unsecured bondholders," who would have 10 percent of the "New GM" and the right to purchase another 15 percent, the filing said.

"Implementation of this proposal would result in a New GM with a healthy balance sheet, putting the new company on a clear path toward long-term viability and success," it added.

The announcement was the latest twist in a saga with global implications for the auto industry, not least the future of GM\’s European operations which was clouded when negotiations on the sale of its Opel unit broke down in acrimony.

All-night talks in Berlin fell apart early Thursday, with Germany accusing GM and US negotiators of scandalous bargaining tactics when they sought an extra 300 million euros (420 million dollars) to keep Opel afloat.

"We were unpleasantly surprised when this new demand came out of the blue," German Finance Minister Peer Steinbrueck said.

"We found that pretty scandalous."

Fresh talks, however, were scheduled for Friday, now to be held against the backdrop of the new GM restructuring plan instead of the threat of an imminent bankruptcy.

German Foreign Minister Franz-Walter Steinmeier on Thursday said he was "very confident" the talks would result in a deal.

Opel employs some 55,000 people across Europe, with nearly half in Germany where the government faces elections in September acutely aware it must save jobs when the country is mired in its worst recession since 1945.

Both GM, only recently the world\’s largest automaker, and Chrysler, are paying the price for bad product choices over the years, with their prospects made worse by the collapse in demand sparked by the global recession.

On Thursday, Chrysler was starting a second day fighting for speedy court approval of its bankruptcy plan which it hopes will allow an orderly restructuring and better future in a tie up with Italian giant Fiat, which along with Canada\’s Magna is also bidding for Opel.

Judge Arthur Gonzalez of the US Bankruptcy Court in New York was expected to rule either Thursday or Friday on whether to approve the sale to Fiat, with Chrysler CEO Robert Nardelli among witnesses expected to be questioned.

Fiat chief Sergio Marchionne flew to the United States after spending all night in Berlin pushing his bid to take over Opel, a company source said.

Chrysler\’s bankruptcy plan is opposed by car dealers, creditors and others who complain that their rights are not being addressed.

If Judge Gonzalez gives the plan the green light, then a new-look Chrysler could emerge within days.

If not, it faces an uncertain future, with a worst-case scenario being Fiat abandoning the tie-up and the US automaker going into liquidation, with massive job losses and a fresh body blow to an economy already deep in recession.

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