General Motors Corp will find out on Saturday if investors holding $27 billion in the automaker's bonds will accept an exchange offer as it races to tie up loose ends before a bankruptcy filing next week.
Success of the new debt-to-equity swap would help in reducing GM's creditor list and ensure that the embattled automaker's time in U.S. bankruptcy court is short.
Bondholders have until 5 p.m. EDT on Saturday to register their support for the deal, which would give them up to 25 percent of a reorganized GM. That offer, however, could be canceled if too few bondholders sign on in support.
The new, sweetened deal for the bondholders -- a 10 percent stake in the reorganized GM and warrants for another 15 percent stake -- already has the support of investors representing at least 35 percent of GM's bonds.
The warrants and the improved capital structure make for an improved recovery for bondholders, Barclays Capital analyst Brian Johnson said. In terms of the bankruptcy process, we expect the likely bondholder assent to smooth the process.
Under the new offer, bondholders have a recovery of around 9 cents on the dollar, up from an estimate of zero to 5 cents under the previous offer, Johnson said.
GM bondholders last week rejected a proposal that would have given them a 10 percent stake in a reorganized GM.
The automaker on Friday got a boost when the United Auto Workers union (UAW) overwhelmingly ratified a new cost-cutting labor agreement with GM, clearing a major hurdle in the automaker's restructuring efforts.
GM is expected to file for Chapter 11 protection on Monday and President Barack Obama will likely discuss the next steps in its reorganization at that time.
ON A DEADLINE
In late March, the Obama administration put the automaker on 60-day notice to restructure the company and clinch concessionary deals with its union and bondholders even as it pumped $19.4 billion in emergency funds to keep the company afloat.
The White House said on Friday that rival Chrysler's bankruptcy proceedings demonstrate the possibility of an orderly restructuring of a major U.S. carmaker and could be a model for GM.
Expectations that the automaker would file under Chapter 11 of the U.S. bankruptcy code rose after GM said Chief Executive Fritz Henderson would host a news conference Monday in New York.
A bankruptcy filing by GM would rank as the third-largest bankruptcy in U.S. history and one of the largest and most complex manufacturing bankruptcies.
GM's bankruptcy is likely to hurt the entire industry -- including rival Ford Motor Co and suppliers, many of whom are already struggling to survive as GM's purchasing budget runs to about $94 billion annually.
The real question is what's going to happen to the supply base now, Dennis Virag, president of Michigan-based Automotive Consulting Group, said.
A filing by GM could also hurt U.S. consumer confidence, which has been ticking up in the past few months, he added.
GM has struggled in recent years to compete, hurt by its truck and SUV-dominated vehicle line-up and a deep plunge in U.S. vehicle demand.
The automaker has lost $82 billion in the past four years even as it continued to cut excess production capacity, jobs and dispose of assets, including brands.
Since 2000, GM has slashed over 100,000 jobs in the United States and plans to cut another 19,000 U.S. jobs by 2012 to bring total U.S. employment to about 72,500.
(Reporting by Poornima Gupta; Editing by Eric Beech and Patrick Fitzgibbons)