General Motors Corp and the U.S. government finalized plans for the battered company to reorganize, setting the stage for America's largest-ever industrial bankruptcy on Monday and heralding a new and uncertain era for the No. 1 U.S. automaker.
GM will file for Chapter 11 bankruptcy protection at the U.S. Bankruptcy Court in the Southern District of New York before markets open, according to sources with direct knowledge of the preparations.
The bankruptcy is the most carefully orchestrated Chapter 11 filing in the history of American business.
GM's final descent to the courthouse started with the Bush administration's emergency aid announcement on December 19 and accelerated in late March when the Obama government gave it 60 days to clinch concessions with unions and other creditors.
President Barack Obama plans to speak on the auto industry at 11:55 a.m EDT (1555 GMT) on Monday, according to his official schedule, as the federal government prepares to take a majority stake in the once-mighty company.
After Obama's remarks, GM Chief Executive Fritz Henderson is due to hold a news conference at the offices of the New York law firm that handled the Lehman Brothers bankruptcy.
Government support for GM is expected to total up to $60 billion. Nearly half of that money has already been extended this year in emergency aid.
The governments of Canada and Ontario will take an equity or debt position in a restructured GM. The Canadian government said Prime Minister Stephen Harper and Industry Minister Tony Clement will make a joint announcement with Ontario's premier in Toronto on Monday at 1 p.m. EDT.
NEW AND OLD
GM is expected to seek a quick sale process in bankruptcy court that would allow a much smaller automaker to emerge swiftly from protection, while assets of the old GM are sold or closed over a longer period of time.
Al Koch, a managing director at advisory firm AlixPartners LLP, will be appointed chief restructuring officer in charge of liquidating GM assets left behind, according to a source familiar with the matter who asked not to be named because the announcement of the appointment will not be made until Monday.
A veteran restructuring adviser, Koch has had prominent roles in Kmart Corp's restructuring and other turnarounds.
The 100-year-old automaker has cleared a major hurdle to a smooth passage through bankruptcy with support from investors representing 54 percent of bondholder debt, but questions remained about GM's ability to return to viability.
U.S. auto sales for May are expected to offer little hope for a short-term recovery for the industry.
No. 3 U.S. automaker Chrysler LLC is nearing the end of a court-supervised restructuring in New York to cut debt and non-performing assets, as well as consummate an alliance with Italy's Fiat SpA.
Gaining bondholder support for a bankruptcy sale process that would swap their $27 billion of debt for up to 25 percent ownership in a reorganized GM was aimed at achieving a smoother ride through the courts.
According to a spokesman for an ad hoc committee of bondholders holding about 20 percent of GM's bonds, 54 percent of debt holders supported the proposal.
GM said on Sunday the Treasury had informed the automaker that the support of more than 54 percent of the bondholders allowed it to proceed with its proposed bankruptcy process.
The support of the bondholders does not ensure court approval but gives the company an important symbolic victory that bankruptcy experts and analysts say will help GM's case.
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.
Obama said in an interview with NBC aired over the weekend that the government was forced to take over GM in order to prevent a collapse that could have brought down other companies and further batter the recession-hit U.S. economy.
My preference would have been to stay out of it completely, Obama said.
In the past week, GM has also concluded an amended agreement with the United Auto Workers union under which the UAW will receive a 17.5 percent in a restructured company instead of $20 billion in cash.
The UAW also made concessions that some say mark a fresh blow to the once common, well-paid manufacturing jobs that created America's middle class.
SALES AT DECADES LOW
With a bankruptcy filing seen just hours away, questions now turn to the potential impact on GM's sales, whether the proceedings could get bogged down, and whether government involvement will help the automaker overcome its core problem -- making and marketing better cars.
U.S. auto sales are already at their lowest level in decades. May sales figures are due on June 2, and expectations are that while dealerships performed better than in April, automakers are likely to report steep declines that reflect the U.S. economic slump.
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 plunge in demand as credit tightened in 2008.
GM's stock fell below $1 on Friday to a level last seen during the Great Depression.
The stock closed at 75 cents on what is expected to be its last trading day before bankruptcy. Shareholders are expected to recover nothing from the bankruptcy.
(Additional reporting by David Bailey, Soyoung Kim, John Crawley, Walden Siew and Tom Hals; Editing by Ted Kerr)