GM bankruptcy seems more likely, analyst argues

Detroit Free Press

WASHINGTON — A top Wall Street analyst warned Monday that a bankruptcy filing by General Motors Corp. seems more likely in part because the government may have to take some losses on its own loans to the automaker.

Shares of GM were off 16 percent in trading Monday morning due to increased worries that the company would be forced to declare bankruptcy as part of the strategy crafted by President Barack Obama’s auto task force.

GM and the Obama administration have been crafting a reworked turnaround plan and debt cut over the past couple of weeks aimed at further reducing the company’s debt burdens, including its obligations to UAW trust fund for retiree health care.

After failing to reach an agreement on a two-thirds’ reduction in debt, the Obama administration may push GM to offer only 20 percent of the stock in the automaker and no cash, according to published reports. The previous offer would have given the bondholders some money along with equity.

JPMorgan analyst Himanshu Patel said the push for bankruptcy may be driven by growing worry that GM will never stabilize unless the government takes a reduction in its loans to the automaker along with bondholders and the UAW.

“If the government has now truly realized that it will eventually have to restructure’ its own loans to GM [similar to Citi or AIG], a bankruptcy may be much more politically necessary,” Patel said in a research note.

He also said new GM chief executive Fritz Henderson appeared far more open to the idea of bankruptcy than former chief Rick Wagoner.