GM in "intense" bankruptcy prep: source
General Motors Corp is in "intense" and "earnest" preparations for a possible bankruptcy filing, a source familiar with the company's plans told Reuters on Tuesday.
A plan to split the corporation into a "new" company made up of the most successful units, and an "old" one of its less-profitable units, is gaining momentum and is seen as the most sensible configuration, said another source familiar with the talks.
If the plan goes through, the new GM is expected to assume some previous creditor debt from bankruptcy proceedings, such as secured debt, said the second source, adding that GM bondholders are likely to lose substantial value in bankruptcy.
Certain GM dealer and litigation claims would also be hurt if the new company structure is used as part of a company bankruptcy, said the second source.
The sources asked for anonymity, saying they were not authorized to speak on the record.
GM Chief Executive Fritz Henderson has said the company prefers to restructure out of court but could go to court if needed. GM declined to comment further.
Moody's Investor Service maintains its view for a 70 percent risk of bankruptcy for Detroit's three automakers given the difficulty of restructuring out of court, the ratings agency said.
In the event of a bankruptcy filing by any of the Detroit automakers, there is a high likelihood that the government will act to prevent an uncontrolled bankruptcy in order to contain the severe disruption to the supply base and the broader economy, Moody's said.
Shares of GM fell more than 9 percent to $2.06, a session low, on the New York Stock Exchange on Tuesday morning.
GM's bonds were steady to slightly lower in late morning trading. GM's benchmark 2033 bond slipped, with the 8.375 percent bond trading at 12 cents on dollar, compared with 12.75 cents before the news came out, according to MarketAxess data. The bonds closed at about 11 cents on Monday, according to MarketAxess data.
GM last month offered bondholders 8 cents on the dollar in cash, 16 cents on the dollar in new unsecured debt, and a 90 percent stake in the automaker, one person with knowledge of the term sheet told Reuters.
[Fuente: By Chelsea Emery and Soyoung Kim, Reuters, NY and Detroit, 07Apr09]
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