GM closer to bankruptcy as bondholders smooth way

President Barack Obama is expected on Monday to publicly discuss GM's next steps as the federal government prepares to assume more than two thirds control of the company in exchange for tens of billions of dollars in assistance.

It would be the largest-ever industrial Chapter 11 bankruptcy petition and the third-largest in U.S. history. It is expected to be filed in New York where rival Chrysler LLC is in the final stages of a court-supervised makeover that includes an alliance with Italy's Fiat.

GM has been losing market share since the early 1980s when it commanded 45 percent of the U.S. market. It has been hurt by its reliance on a truck-dominated vehicle line-up and by a deep plunge in demand as credit tightened in 2008.

Since last week, GM has been racing to complete a series of last-minute deals intended to help speed its way through a fast-track bankruptcy that would see it emerge under the majority ownership of the U.S. government.

Those deals have included a new contract for the United Auto Workers union and an agreement to spare GM's Opel brand from collapse in a deal brokered by the German government.

Bondholders have been one of the last pieces to fall into GM's complicated bankruptcy puzzle under the direction of the autos task force appointed by the White House and headed by former investment banker Steve Rattner.

Investors representing about 54 percent of GM's $27.2 billion of bonds have indicated support for a U.S. Treasury-brokered swap of debt for equity that could help speed the automaker's way through bankruptcy.

Elliot Sloane, a spokesman for an ad hoc committee that represents about a dozen big GM bondholders, said investors representing 19 percent of GM bonds indicated new support for the swap proposal before Saturday's deadline.

In late March, the Obama administration put the automaker on 60-day notice to restructure and clinch concessionary deals with its union and bondholders.

The U.S. government has already pumped $19.4 billion in emergency funds into the Detroit-based automaker since the start of the year.

Obama said in an interview with NBC, that aired over the weekend, that the government had to take over GM in order to prevent an uncontrolled failure that could have brought down other companies and further shocked the recession weary economy -- especially the hard hit Midwest where U.S. automakers are based.

My preference would have been to stay out of it completely, Obama said.

(Reporting by John Crawley, additional reporting by David Bailey in Detroit; Editing by Tim Dobbyn)