G.M. Bondholder Deal Sets Stage for Bankruptcy

General Motors on Sunday continued its seemingly inevitable march into bankruptcy court after clearing a major hurdle by getting many of its bondholders to agreed to a debt exchange that gave them a bigger stake in the new company.
The company is expected to file bankruptcy on Monday, the deadline set by the Obama administration to submit a viable revival plan or seek court protection.

Media reports said Sunday that President Obama would discuss G.M.’s situation at a news conference on Monday morning, much as he did on April 30 when G.M.’s cross-town rival, Chrysler, sought court protection.

As he did with Chrysler, President Obama will most likely try to cast the filing in a positive light, talking about the importance of the auto industry and the need to create a new beginning for G.M.

As for G.M., it has scheduled a news conference with its chief executive, Fritz Henderson, on Monday in New York. G.M.’s board also gathered in New York ahead of Monday’s expected filing.

Over the weekend, G.M. cleared a couple of obstacles to a court reorganization. Late Saturday, a majority of G.M. bondholders agreed to exchange their debt in exchange for an ownership stake as high as 25 percent in G.M.

Holders of about 54 percent of G.M.’s $27.2 billion in bond debt, agreed to support the plan by the Saturday afternoon deadline, according to Elliot Sloane, a spokesman for a committee representing some of G.M.’s largest bondholders, which negotiated the deal with the government. All told, 975 investors expressed support for the plan.

Mr. Sloane said that 20 percent of the support came from the ad hoc bondholders committee, another 15 percent came from bondholders who had backed earlier G.M. offers and 19 percent from investors who got on board between Thursday and Saturday.

But groups representing some of G.M.’s retail bondholders — individual investors who purchased the company’s bonds for as little as $25 a piece — said they still planned to contest the reorganization plan.

“Regardless of the outcome of the General Motors and the government’s ‘offer’ to G.M. bondholders,” the group, G.M. Bondholders Unite, said in a statement that “its members are more committed than ever to stand up for their legal rights.”

It is not known how many of these individual investors there are, but some estimates place their holdings of G.M.’s $27.2 billion in bonds at more than 25 percent.

In a regulatory filing last week, G.M. said the government, which is to provide bankruptcy financing of about $50 billion, initially would hold 72.5 percent of G.M., with the United Automobile Workers union receiving 17.5 percent, and bondholders 10 percent.

But the percentages held by the bondholders and the union could conceivably be larger because each are being offered warrants in the new G.M., which would be created in bankruptcy.

Under the terms of the plan, bondholders would initially receive 10 percent. They could then exercise their warrants for an additional 7.5 percent when the new G.M. rises to about $15 billion in value. The second set of warrants for the final 7.5 percent would be exercisable when new G.M. rises to $30 billion in value.

The union would initially receive a 17.5 percent stake to finance a health care trust for its retirees. It has also received warrants to raise that holding to 20 percent — but those warrants are exercisable only if new G.M.’s value hits $75 billion.

Once the union and bondholders achieve their full stakes, the government’s share would drop to 55 percent.

G.M.’s agreement with bondholders should allow the company to restructure in the courts rather quickly, much like Chrysler has been able to do.

A federal judge is expected to rule on the sale of most of Chrysler to Fiat, the Italian carmaker, sometime on Monday. The judge, Arthur J. Gonzalez, heard arguments and testimony on the proposal during three days of marathon hearings last week.

If approved, Chrysler and the government expect to close on the Fiat deal within days of receiving permission. But the sale is being challenged by several parties, including three Indiana state funds and several groups of dealers that have been designated for removal from Chrysler’s network.

Also on Saturday in Berlin, Chancellor Angela Merke of Germany formally announced a deal to sell G.M.’s European operations to an alliance led by Magna International, a Canadian auto parts maker, and Sberbank of Russia. The operations include Opel of Germany as well as the British auto company Vauxhall.

The deal was brokered in Berlin, with negotiations stretching from Moscow to Washington, Detroit, Ontario and New York, where G.M.’s board gathered.

As part of the deal, the German federal government and four states — Thuringia, Rhineland-Palatinate, Hesse and North Rhine-Westphalia — will split the cost of a 1.5 billion euro, or $2.1 billion, short-term finance package to keep Opel operating after G.M.’s files for bankruptcy. Thuringia and Rhineland-Palatinate backed the deal on Saturday. On Sunday, North Rhine-Westphalia and Hesse promised their backing.

“The time of uncertainty is over,” The Associated Press quoted Gov. Juergen Ruettgers of North Rhine-Westphalia as saying. “The main components of Opel’s future remain in Europe.”

The deal gives Sberbank, which is majority owned by the Russian government, and G.M. each a 35 percent stake in Opel. The car parts maker Magna International will own 20 percent and Opel employees will hold the remaining 10 percent.

Michael J. de la Merced reported from New York and Nick Bunkley from Detroit. David Jolly contributed reporting from Paris and Micheline Maynard from New York.