WORLD> America
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WORLD> America
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US likely taking majority ownership of GM
(Agencies)
Updated: 2009-05-27 17:06 NEW YORK – In the end, General Motors' massive cash needs likely trumped any chance of the automaker avoiding a bankruptcy court-supervised reorganization.
Reaching such an agreement was one of the requirements of the Obama administration, which already has committed $19.4 billion in aid and said it would only provide more funds if bondholders and unionized workers made concessions that substantially reduced GM's costs. There was a small hope Tuesday that GM could avoid a bankruptcy filing when the United Auto Workers union disclosed that it would take a 20 percent stake in GM — down from the original plan of 39 percent. That seemingly would have allowed the Detroit-based company to sweeten the pot for its recalcitrant bondholders. But GM's need for as much as $50 billion in additional financing from the government to pay off secured lenders and keep the company operating during a complicated restructuring means instead that the government's stake will probably rise from 50 percent to as much as 70 percent, according to The Wall Street Journal. In exchange for the roughly $8 billion in aid it is expected to pony up as well, the Canadian government also will likely receive a small stake in the automaker.
Meanwhile, crosstown rival Chrysler LLC heads to court Wednesday to ask a bankruptcy judge for permission to sell the bulk of its assets to a group headed by Italy's Fiat Group SpA in hopes of saving itself from liquidation. Attorneys for Chrysler maintain that the Fiat deal is the company's only hope to avoid being sold off piece by piece, but car dealers, bondholders, former employees and others are protesting what they see as the government speeding Chrysler through the bankruptcy process without regard for certain creditors. Chrysler filed for bankruptcy protection April 30, after the government ended talks with a group of hold-out bondholders. Automakers worldwide are struggling as the global recession has reduced demand for new vehicles. But GM and Chrysler have been particularly hobbled by promises to cover the health and pension costs of tens of thousands of unionized retirees — along with recent record-high gasoline prices that reduced demand for their low-mileage trucks and SUVs. The UAW disclosed Tuesday it agreed to take a much smaller 17.5 percent stake in GM, plus a warrant for an added 2.5 percent stake to partially fund the $20 billion that GM must put into a trust that will start paying retiree health care costs next year. In exchange for agreeing to a lower equity ownership stake, GM promised the union $6.5 billion of preferred shares that pay 9 percent interest, plus a $2.5 billion note. The union, facing the possibility that it may not be able to quickly sell GM shares to fund its trust, preferred the certainty of the $585 million annual dividend that accompanies the preferred shares. The remaining $10 billion will come from health care trust funds that GM already has set up. The trust will get a seat on GM's board as well, although it will have to vote at the direction of GM's other independent directors. The concession deal, on which roughly 61,000 workers will vote by Thursday, also froze wages and cut retiree health care benefits, performance bonuses and cost-of-living raises. When GM announced its debt exchange last month, the company offered bondholders 225 shares of common stock for every $1,000 in debt — or a 10 percent stake in the restructured company. In addition to the UAW's share, the federal government would take 50 percent for exchanging a combined $20 billion of their debt to equity. Current stockholders would end up owning just 1 percent of the company. |
