General Motors Corp has failed to persuade enough bondholders to accept a debt-for-equity swap, setting the stage for the largest-ever U.S. industrial bankruptcy by the end of this month.
The largest U.S. automaker had so far failed to gain anywhere near the 90 percent of bondholder support desired to stave off bankruptcy, two sources familiar with the discussions told Reuters on Tuesday. Bondholders have until midnight to make their final decision on the tender.
As of midday Tuesday, the source said the company had only low-single-digit interest from bondholders.
Reuters' sources said GM will likely file for bankruptcy some time after midnight Tuesday, but before June 1.
The failure to gain bondholder support is a critical disappointment for GM, the largest U.S. automaker and once considered the standard-bearer of all U.S. manufacturing. In the 1950s, a popular ad for the automaker proclaimed that What's good for General Motors, is good for the USA.
I would say this is a sound rejection of an unsuitable offer, said Pete Hastings, a credit analyst at Morgan Keegan who has followed GM. I have been saying for some time that this thing was dead on arrival and we were just waiting for the doctor to pronounce it dead. Now that's happened.
As various deadlines near for the automaker, officials at the United Auto Workers' union will gather to hear how many U.S. factory jobs GM will cut as part of its restructuring.
Union officials representing 54,000 GM workers are scheduled to meet to prepare for a quick ratification vote on a cost-cutting labor deal negotiated last week. The union aims to complete those votes by Thursday.
Approval of the contract, which would change payment terms on $20 billion owed to a UAW trust fund, represents one of the hurdles for GM to clear before a June 1 deadline set by the Obama administration.
But bondholders have balked at proposals that they forgive debt in exchange for a 10 percent stake in a restructured company.
Under GM's current plan, a UAW trust fund for healthcare would receive a GM stake of about 39 percent. The U.S. Treasury would hold a 50 percent stake. Current shareholders would be left with just 1 percent of a restructured company.
A person familiar with Obama administration thinking on the matter said the administration was continuing to engage with bondholders to reach agreement.
Shares of GM, which the automaker has warned could be worthless in a bankruptcy, were down 20 cents or 14 percent at $1.23 on the New York Stock Exchange on Tuesday.
The U.S. government has provided a combined $36.6 billion to GM, Chrysler and their financing units since December.
In an interview broadcast over the weekend, Obama said he hoped GM and Chrysler would emerge from restructuring leaner, meaner, more competitive.
Ultimately, I think that GM is going to be a strong company, he said.
THE OPEL SAGA
While much attention is on Washington and Detroit, talks continue in Europe over the possible sale of GM's Opel unit.
On Tuesday, Germany pressed the three bidders for Opel to improve their offers for the carmaker, saying they needed to assume greater risks and make credible commitments to preserve jobs and sites.
Economy Minister Karl-Theodor zu Guttenberg told reporters after meeting Fiat Chief Executive Sergio Marchionne in Berlin that the Italian carmaker's offer looked serious but that rival bidders Magna and RHJ International remained in contention.
There's no favorite, he said. Everyone knows that improvements are still necessary.
Fiat made an aggressive last-ditch push to convince the German government to back its bid for Opel ahead of a top-level meeting in Berlin on Wednesday where a preliminary decision on preferred bidders is expected.
Marchionne met with Chancellor Angela Merkel and Guttenberg on Tuesday morning to try to address German concerns about his ambitious plan to fold Opel into a transatlantic car empire that would also include U.S. carmaker Chrysler.
The German government hoped to be able to settle on one or more preferred bidders late Tuesday or Wednesday, a step which could lead to further negotiations.
Pressure to choose a preferred bidder is building ahead of the June 1 restructuring deadline for GM.
Across the border in Canada, GM workers at plants in Ontario on Monday ratified concessions negotiated last week with a vote of 86 percent in favor.
(Reporting by Jui Chakravorty and Kevin Krolicki; additional reporting by John Crawley, Andreas Moeser, Noah Barkin, David Lawder and Nick Carey; editing by Patrick Fitzgibbons and Matthew Lewis)