Does bondholder deal stave off GM bankruptcy?

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Last night it looked like General Motors (GM) had failed to get its bondholders, who own $27 billion in its debt, to accept a deal to get 10 percent of the new GM in exchange for their bonds. But this morning it looks like the bondholders have accepted a sweetened offer that will give them 10 percent of the new GM plus warrants to buy 15 percent more if stock in the new GM rises enough.

As I posted, yesterday's plan would have given the U.S. most of the new GM. Specifically, the U.S. will get 72.5 percent of the stock of a new GM -- which sells just Chevrolet and Cadillac products -- and another 17.5 percent will go to the UAW. To get from here to there, the U.S. will chip in $50 billion in debtor-in-possession financing, 1,300 more GM dealers will lose their franchises, and 14 plants will close by the end of 2010.

Does this mean that GM can avoid bankruptcy? Sorry to let common shareholders know that GM will still file for bankruptcy this week. It's just that thanks to the deal with bondholders, the new company will emerge from bankruptcy relatively quickly. As long as the bondholder deal for warrants does not dilute the interests of the other stakeholders too much -- the deal should hold up.

Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College. His eighth book isYou Can't Order Change: Lessons from Jim McNerney's Turnaround at Boeing. He has no financial interest in GM securities.
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