With bondholders refusing to swap debt for a 10-percent stake, the largest US automaker General Motors Corps. has been pushed closer to a bankruptcy filing.

According to GM sources, the number of bondholders who agreed to swap debt for a 10-percent stake in the company was "substantially less" than the 90 percent mandated by the US Treasury Department, which has loaned GM US$19.4 billion in a taxpayer money bailout.

GM's offer, which expired at midnight on Tuesday, was widely viewed as unlikely to tempt GM's unsecured bondholders to exchange about US$24 billion in debt for a 10-percent piece of the restructured automaker.

The failed exchange could force GM to file Chapter 11 bankruptcy by Monday, the deadline by which the automaker was required to restructure and reach money-saving concessions with the United Auto Workers union and bondholders.

In a statement issued on Wednesday, GM said: "the GM Board of Directors will be meeting to discuss GM's next steps in light of the expiration of the exchange offers."

According to reports, in early trading, shares of GM were down 17 cents, or 11.7 percent, to US$1.27.

It was reported that there had been a small hope that GM could avoid a bankruptcy filing when the United Auto Workers union made concessions to GM. The auto union disclosed on Tuesday that it would take a 20-percent stake in GM, down from the original plan of 39 percent. That seemingly freed 19 percent of the Detroit-based company's shares to sweeten the pot for its recalcitrant bondholders.

As the bondholder deal did not go through, the equity freed by the auto union deal now apparently will go to the US government, which may have to commit billions more for GM's restructuring in court.

The government's stake in the company originally was to be 50 percent. But it now could be as high as 69 percent.

GM's offer was expected to fail considering a committee representing some of GM's largest bondholders have called the offer unfair and countered with a proposal that would give them a 58-percent stake in the company.

According to experts in the US auto industry, regardless of the results, GM needs to file Chapter 11 bankruptcy to become a profitable company. A bankruptcy filing would help GM restructure debt, shrink its dealer network, shed unprofitable assets and dispose of machinery and equipment.

If GM files bankruptcy, the automaker is expected to receive about US$30 billion in debtor-in-possession financing and exit financing.

Bondholders rank below GM's US$6 billion in senior secured debt and the government's nearly US$21 billion in debt, so in a liquidation of GM they would get nothing or something unbelievably small, a person familiar with the matter told Detroit News.

According to reports, the US government, even if it receives a 70-percent equity stake in GM, would not exercise day to day control over GM's operations or make decisions on where GM's headquarters would be placed.

The Treasury will not appoint government employees to GM's board, but is helping GM to reconstitute its board of directors and will have the right to appoint some directors, as it does with the deal it has with Chrysler LLC.

It is reported that the Obama administration, in its planning for a GM bankruptcy if no deal is reached with bondholders, is prepared to lend the company an additional US$30 billion, bringing the total US investment in the automaker to US$45 billion.

(Xinhua News Agency May 28, 2009)