GM May Be Heading For Quick, Pre-Packaged Bankruptcy

General Motors Corp. (GM) appears to be heading to bankruptcy court for a quick pre-packaged bankruptcy. This is after the bond holders who hold $27 billion in debt agreed to an offer that would give them 10% of the restructured GM with an ability to take it to 15% with warrants. They must agree that assets will be sold to a new company in bankruptcy (good GM/bad GM).

This is lower than the 58% ownership that they were looking for originally. It is also believed that there are treasury incentives to back up the bondholders. GM indicated that it may not make $1 billion of debt payments on June 1. However, it is believed that this will be covered by the Government.

The Government is likely to hold 70% of the equity of GM post bankruptcy, which is reimbursement for $20 billion already given to the company and an expected $40 billion more when a filing occurs. Some is this will be for the under-funded pension, which is near $13 billion. The UAW will have 20% of the company.

Pontiac will be phased out, while negotiations to sell Hummer and Saab continue.  GM will emerge with $25 billion of secured debt post bankruptcy.

Overall, Ford (F), Honda (HMC), Nissan (NSANY) and Toyota (TM) are likely to be beneficiaries from any lost sales, although a quick bankruptcy may keep this to a minimum (there are rumors that Chrysler is close to an exit).

Major suppliers that could impacted in the near-term with lower volumes are: Magna (MGA), Lear (LEA), American Axle and Manufacturing (AXL) and ArvinMeritor (ARM).

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