GM bankruptcy D-day tonight

PRESIDENT Barack Obama and General Motors president and CEO Fritz Henderson have called back-to-back media conferences tonight (about 2am eastern Australian time), in which they are almost certain to announce GM’s application for Chapter 11 bankruptcy.

Mr Obama is scheduled to go first in a video announcement from the White House, before Mr Henderson goes before the media at the GM Building in New York.

These announcements will be followed by a GM Holden media conference at 9am tomorrow in Melbourne to spell out the implications for the Australian manufacturer.

GM’s decline into bankruptcy would mark the biggest corporate Chapter 11 application in US history, but is likely to provide the circuit breaker for a leaner, keener GM with a focus on more fuel-efficient cars.

GM has been forced to go the US federal court to seek bankruptcy protection because a number of bondholders have refused to accept a sweetened debt-for-equity swap deal.

Bondholder agreement for the swap was an essential part of the US treasury department’s requirements for continued government financial support for GM as it restructures. It had initially wanted 90 per cent of bondholders to support the swap, but a little more than 50 per cent accepted by Saturday’s deadline.

Left: GM president and CEO Fritz Henderson. Below: President Obama.

Treasury has already lent GM $US19.4 billion ($A24.2 billion) and there is another $US30 billion, perhaps $US40 billion, on offer when GM emerges from bankruptcy.

In a surprise switch, GM and the treasury offered bondholders the chance to lift an initial 10 per cent stake in the company to 25 per cent by issuing warrants allowing them to buy a further 15 per cent of GM’s share capital.

The initial offer of 10 per cent in return for a minimum of $US24 billion ($A30 billion) of unsecured debt was roundly rejected by bondholders in a vote last week. The bondholders are owed a total of $US27 billion.

The new deal, however, attracted the support of just more than 50 per cent of the bondholders by the 5pm deadline on Saturday.

The deal offered to the United Auto Workers (UAW) union has also been improved. Instead of a 10 per cent stake, the union will now receive a 17.5 per cent stake in return for swapping half the $US20 billion that GM has agreed to pay into the Voluntary Employee Benefit Association (VEBA).

On behalf of the VEBA, the UAW will also be granted warrants allowing it to buy a further 2.5 per cent to lift its total stake in GM to 20 per cent.

After conversion of some of its loans, the US treasury will hold more than 70 per cent of GM. The UAW would hold around 17.5 per cent and the bondholders 10 per cent before they exercised their warrants. The current shareholders will see their stake shrink from 100 per cent to 1 per cent.

It is expected that the warrants issued to the UAW and the bondholders will give them the chance to buy part of the treasury’s GM holding.

GM is preparing documents and an application for Chapter 11 protection on Monday.

President Obama is expected make a speech about the government's unprecedented role in helping to restructure a company that was once the benchmark for manufacturing enterprises around the world.

It is believed the US government plans to invest $US60 billion in GM. A further $US12.5 billion of government funding has gone to GM's 50 per cent-owned finance company, GMAC.

“My preference would have been to stay out of it completely,” Mr Obama said in an interview with NBC News recorded on Friday at the White House and broadcast on Saturday.

“But the alternative was to see a liquidation, bankruptcy in which an enormous institution with huge importance to our economy simply gets broken up into pieces,” he said.

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