G.M. Nears Bankruptcy as Debt Exchange Fails

Will President Obama sic the dogs after the GM bond holders as he did with the Chrysler bond holders? Will bankruptcy law become a matter of how we feel about who is owed what? Will the UAW own both Chrysler and GM when President Obama grants it the government-owned shares and how will the bond holders feel? How do we feel about this? Do we have empathy? How will our new Supreme Court justice feel about this? What will this experience do for bankruptcy law?

G.M. Nears Bankruptcy as Debt Exchange Fails

By CARTER DOUGHERTY and DAVID JOLLY

Published: May 27, 2009

Bondholders at General Motors on Wednesday rejected an offer to exchange $27 billion in debt for a small amount of stock, as G.M. prepared for a bankruptcy filing that could come as soon as this weekend.

In Europe, the company moved to combine its main operations under the umbrella of Adam Opel, its German business, to simplify the sale of the unit.

In a statement about the bondholders, G.M. did not give vote totals for the tender offer, which began on April 27 and expired at 12:01 a.m. Wednesday. G.M. had required 90 percent of bondholders to agree to exchange their debt, said said Wednesday morning that the notes tendered were “substantially less than the amount required.”

Without approval, G.M. had said it would seek bankruptcy protection. But it made no announcement of its plans. The company said it had withdrawn its offer, and that its board would meet to decide further steps.

The company is expected to spend the next few days finishing its bankruptcy case. One important element before it files is securing the approval by the United Automobile Workers union of a new set of concessions.

Workers are voting on the proposal in meetings on Wednesday. It would form the basis of a labor contract between the union and the new version of G.M. that is expected to emerge from bankruptcy protection.

In Europe, the combination of G.M.’s businesses, which is contingent on Berlin’s approval, would help to “ring fence” the assets from a bankruptcy filing of the parent company, and would make German government and General Motors equal partners, a G.M. spokeswoman in Zurich, Karin Kirchner, said.

“The intention is to pool the Opel and Vauxhall assets under the Adam Opel unit,” Ms. Kirchner said. “We’re doing this in preparation for a trustee model that has been proposed by the German government.”The simplified structure could ease the way to the next step, which is expected to be a sale of Opel to either Fiat, the Italian carmaker, or Magna International, the Canadian auto parts maker, which is backed by the Russian lender Sberbank. The winning bidder will most likely be announced later Wednesday, the German finance minister Peer Steinbrück told journalists in Berlin.

Chancellor Angela Merkel and other top German politicians, including governors from states with Opel plants, were to meet with Fiat and Magna executives, as well as representatives of G.M. and the United States government.

Mr. Steinbrück said the interest expressed by a Chinese company, widely reported to be Beijing Automotive, might have come too late. Beijing Automotive officials could not be reached for comment and G.M. and the German government declined to further identify the Chinese bidder.

RHJ International, a Belgian-listed investment company, has also proffered a bid, but German officials have signaled that the Magna or Fiat bids were considered the most serious.

“The chancellor has to examine the offer by Magna very closely because in my opinion, as far as I’m informed, it’s the most realistic, the best offer,” said Peter Struck, the parliamentary leader of the Social Democrats, who, with the Christian Democratic Union of Merkel, form the governing coalition.

German state and federal governments have put together a loan guarantee package of 1.5 billion euros, or $2.1 billion, to pave the way for a deal for Opel.

As skepticism about Fiat’s offer has spread, Magna executives have mounted a campaign to assuage German officials in matters where its own offer had ruffled feathers.

For example, Magna’s bid initially foresaw the elimination of 2,200 jobs in Bochum, in northwestern Germany, a step that drew the ire of Juergen Ruettgers, the governor of North Rhine-Westphalia, where Bochum is located. Magna wants to cut 2,600 jobs in Germany overall.

Magna has since floated the idea of moving production of the Opel Astra, a line of small family sedans, from Antwerp, Belgium, to Bochum, allowing it to keep more positions there.

German officials said that Fiat stuck to its plans to keep Opel’s three assembly plants, but close the engine plant in Kaiserslautern.

The Magna offer would put 35 percent of Opel in the hands of Sberbank, a Russian bank, and include cooperation with GAZ, a Russian automaker. Oleg Deripaska, an ally of Prime Minister Vladimir V. Putin, is the controlling shareholder in GAZ.

Nelson D. Schwartz contributed reporting from Paris, Micheline Maynard from Detroit and Keith Bradsher from Hong Kong.