The Obama administration’s decision to force Chrysler LLC to file for Chapter 11 bankruptcy implies the same could happen to General Motors Corp. unless the United Auto Workers and bondholders agree to money-saving concessions by the end of the month, industry experts said.
The historic filing, which came after a small number of Chrysler creditors balked at a debt restructuring, underscores the peril GM faces unless it can convince 90 percent of its bondholders to swap $27 billion in debt for a 10 percent stake in the company before a June 1 restructuring deadline, analysts said.
“When there is a lot of bluffing going on in any negotiation, this shows the government is serious,” said Jeremy Anwyl, chief executive officer of Edmunds.com.
GM, operating thanks to $15.4 billion in loans, is working to cut deals with all stakeholders and is racing to trim workers, brands, plants and dealerships in hopes of qualifying for billions in additional aid.
GM would not comment on what implications Chrysler’s bankruptcy filing could have on its own operations.
“GM remains focused on accelerating the speed of its operational restructuring and reducing the liabilities and debt on its balance sheet,” the company said.
Nonetheless, the Chrysler filing triggers an increasing level of concern that GM might be forced into Chapter 11 bankruptcy, said Paul Melville, an industry expert with consulting firm Grant Thornton LLP.
“It puts more uncertainty into the market,” he said.
GM and its bondholders remain far apart on a deal to swap billions in debt for equity in the automaker. Bondholders issued a counteroffer that would give them a 58 percent stake in the company for forgiving $27.2 billion in unsecured debt.
The counteroffer would save U.S. taxpayers $10 billion in cash, avoid nationalizing one of the country’s largest companies and treat all GM stakeholders equitably, said Eric Siegert, senior managing director of Houlihan Lokey Howard and Zukin, the financial adviser representing an ad-hoc committee of GM’s largest bondholders.
That is a stark contrast to GM’s proposal unveiled Monday, which would give bondholders a 10 percent stake, an offer labeled as unfair and one that bondholders and analysts said would yield pennies on the dollar. The exchange offer expires May 26.
Shares of GM climbed 11 cents, or 6 percent, Thursday to $1.92. In the last year, the stock price has lost 92 percent of its value.