Shareholders reject deal; GM edges closer to bankruptcy

NEW YORK (AP) — In the end, General Motors' massive cash needs likely trumped any chance of the automaker avoiding a bankruptcy court-supervised reorganization. General Motors Corp. is expected to announce early Wednesday that only a small fraction of the holders of its $27 billion in bonds agreed to swap that unsecured debt for a 10 percent equity share of a recapitalized GM.

Reaching such an agreement was one of the requirements of the Obama administration, which already has committed $19.4 billion in aid and said it would only provide more funds if bondholders and unionized workers made concessions that substantially reduced GM's costs.

There was a small hope Tuesday that GM could avoid a bankruptcy filing when the United Auto Workers union disclosed that it would take a 20 percent stake in GM — down from the original plan of 39 percent. That seemingly would have allowed the Detroit-based company to sweeten the pot for its recalcitrant bondholders.

But GM's need for as much as $50 billion in additional financing from the government to pay off secured lenders and keep the company operating during a complicated restructuring means instead that the government's stake will probably rise from 50 percent to as much as 70 percent, according to The Wall Street Journal. In exchange for the roughly $8 billion in aid it is expected to pony up as well, the Canadian government also will likely receive a small stake in the automaker.

Such an arrangement would leave bondholders back where they started — and a Chapter 11 filing all but certain. The deadline for GM's bondholders to tender their debt was midnight Tuesday. If bondholders representing 90 percent of GM's unsecured debt — about $24 billion — didn't agree to the exchange, GM has said it will file for bankruptcy protection.

Meanwhile, crosstown rival Chrysler LLC heads to court Wednesday to ask a bankruptcy judge for permission to sell the bulk of its assets to a group headed by Italy's Fiat Group SpA in hopes of saving itself from liquidation. Attorneys for Chrysler maintain that the Fiat deal is the company's only hope to avoid being sold off piece by piece, but car dealers, bondholders, former employees and others are protesting what they see as the government speeding Chrysler through the bankruptcy process without regard for certain creditors.