GM bondholders balk at plan; bankruptcy now likely

DETROIT — General Motors bondholders felt they deserved something like a 58 percent stake in the company in exchange for their billions of dollars in debt. What they were offered wasn't even close.

As a result, the largest industrial bankruptcy in U.S. history is now all but certain. The bondholder rejection virtually ensures GM will file for Chapter 11 bankruptcy protection within days.

"They said no. That's it. They tried. That's why they're going to have to file," said John Pottow, a professor at the University of Michigan who specializes in bankruptcy.

The government, which has already extended nearly $20 billion in loans to GM, ordered the company to come up with a plan that 90 percent of its bondholders would agree to. But the government allowed it to offer only 10 percent of the company's stock. GM was forced to withdraw the offer Wednesday after it fell far short.

A person familiar with discussions between GM and the government told The Associated Press any bankruptcy filing would probably come around the government's Monday deadline for GM to finish restructuring or enter court protection. The person asked not to be identified because the talks are private.

To avoid bankruptcy, the government had said GM must shed debt, cut labor costs and close plants.

GM bondholders are owed about $27 billion, the largest chunk of GM's roughly $58 billion in debt. They were offered the 10 percent stake to wipe out the debt, well short of the 58 percent they wanted.

A GM bankruptcy would be the fourth-largest in U.S. history and the largest for an industrial company.

Like its crosstown rival Chrysler, which was angling Wednesday for a judge's permission to sell most of its assets to a group headed by an Italian automaker, GM was pulled down by debt, high labor costs and a devastating sales slump.

The government has poured billions into the two companies, fearing the ripple effects of catastrophic job losses might push the economy into a depression. The pair employ more than 140,000 people in the U.S., and hundreds of thousands of others rely on the companies working for parts suppliers, dealerships and other associated businesses.

GM spokesman Tom Wilkinson said company's board would meet later this week to decide its next move. He would not reveal what percentage of bondholders accepted the debt-for-equity offer, but GM said it was "substantially less" than needed.