GM was able to avoid bankruptcy court when it received billions in government loans, but Deutsche Bank automotive analyst Rod Lache feels GM will have a tough time getting concessions from bondholders, making bankruptcy far move likely. GM's deal with the government includes a stipulation that demands the General swaps a great deal of its $36 billion in outstanding debt for equity. Failure to do so means that GM will have to return the $13.4 billion given by the government.
GMAC, which was required to exchange 75% of its bondholder debt for equity to become a TARP-eligible bank holding company, was only able to convert 59%. The government loaned GMAC $6 billion anyway, which raised the value of the outstanding debt, rewarding bondholders that refused to deal. Lache feels that, given the trouble GM had with GMAC, the Detroit automaker could have trouble convincing its bondholders to swap debt for equity. If GM manages to reach other government targets like union salary and dealer count reductions, though, Lache thinks GM could take bondholders to court and force them to agree to terms.

We are completely ignorant about bankruptcy law, but that apparently is a form of bankruptcy. Lache insists that it isn't the really scary kind of bankruptcy that brings down GM's dealer body and supplier base, but customers won't like it regardless. GM CEO Rick Wagoner won't rule out bankruptcy since some pieces of the government deal are out of the company's control, but he feels the chances of GM's survival are "very high." It is important to remember, though, that the Bush administration dictated the terms of the loan deal. The incoming Obama team could possibly undo or rewrite the terms of the loan, or change the March 31 timeline.

[Source: Detroit Free Press]

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