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Originally published May 29, 2009 at 12:00 AM | Page modified May 29, 2009 at 11:29 AM

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GM, Chrysler in drive to reach bankruptcy deals

The Obama administration's plan to revive two of the nation's major automakers powered forward Thursday, with Chrysler pushing to create...

The Washington Post

The Obama administration's plan to revive two of the nation's major automakers powered forward Thursday, with Chrysler pushing to create a new company in bankruptcy and General Motors readying for a similar trip to court by offering a new deal to bondholders.

The government, which so far has committed more than $30 billion combined to the companies, is aiming to use the bankruptcy process to strip the automakers of their overwhelming debts and reconstitute them as streamlined, more viable global competitors.

As it moved ever closer to a bankruptcy filing, GM sought Thursday to strike a deal with its bondholders so they would be less likely to fight bankruptcy proceedings in court.

The GM bankruptcy plan, which has been crafted by the company and the Obama administration, aims to sell off the automaker's productive assets to a new, revived GM.

GM announced Thursday that if a substantial number of bondholders agree to support its bankruptcy plan, they collectively would receive a 10 percent stake in the new company and the ability to buy an additional 15 percent share if the recovery of the automaker reaches certain thresholds.

"The U.S. Treasury proposal announced today provides incentives for GM's unsecured bondholders to support GM's restructuring efforts," GM said in a statement. "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."

Under the deal, the value of the investors' $27 billion in bonds would be wiped out. But GM warned that if the group opposes the bankruptcy plans, the Treasury would push to "substantially" cut their stakes in the reorganized company.

An informal group of GM bondholders, who hold about 20 percent of the automaker's $27 billion of bonds, has indicated it would support the deal. The others have until 5 p.m. Saturday to show their support.

In a statement, the group said the new deal, "gives the bondholders the opportunity to recover a greater portion of their original investment than was previously offered."

Yet the group continued to argue that the United Auto Worker's health-care trust, known as the VEBA, is unfairly getting a larger stake in the new GM.

In bankruptcy, GM is set to receive about $30 billion in new aid from the U.S. Treasury, while Canada is poised to contribute another $9.5 billion.

In return, the U.S. government would own 72.5 percent of the new GM, according to the company's filings. The Canadian government and the province of Ontario would also receive some equity in return for debt financing. The union's health trust would receive 17.5 percent.

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The new offer to bondholders "is a very positive step forward in the restructuring of GM," an administration official said Thursday, speaking on condition of anonymity because of the sensitivity of the negotiations. The official added that the offer has a "high probability of success."

If GM can win the bondholders over, it has a greater likelihood of moving through bankruptcy as rapidly as Chrysler has, at least so far.

Robert Nardelli, Chrysler chairman and chief executive, testified in bankruptcy court Thursday that he expected that a new Chrysler could emerge from bankruptcy as early as Friday. His testimony came on the second day of a highly anticipated hearing on a motion by Chrysler to sell itself to an entity jointly owned by Fiat, the UAW and the U.S. and Canadian governments.

If Nardelli's timetable proves accurate, the government orchestrated restructuring of Chrysler would have been completed in 29 days. But Nardelli said the venture still must pass antitrust review, and more than 300 objections have been filed in court by Chrysler's lenders, retirees, dealers, suppliers and other stakeholders. By early Thursday night, the judge had yet to rule on a single objection.

Among those protesting a sale are a group of Indiana pension and construction funds, which hold about $42 million of the $6.9 billion in senior secured loans to Chrysler.

The funds contend that the government-orchestrated sale of Chrysler violated their rights as senior secured lenders, and that under the proposed sale they would recover less than junior lenders. The lenders would recover 29 cents on the dollar.

But Nardelli testified that the proposed sale would yield more value for all stakeholders than a liquidation, and that selling off certain product lines was not feasible, because many product lines shared parts and factories. Even when a model did not share parts — such as the Dodge Viper line which Chrysler tried to sell for $10 million — there was no buyer to be found.

Copyright © 2009 The Seattle Times Company

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