GM’s Latest Plan to Reduce its Debt

Now that Chrysler has fallen into bankruptcy, all eyes are on General Motors to see if the automaker can produce an extensive restructuring effort before its government-assigned deadline. GM has proposed yet another plan to reduce its substantial debt by all but wiping out the holdings of its major shareholders.

GM is offering to issue 60 billion new shares in an attempt to pay off the debt owed to the U.S. government, bondholders and the UAW. The plan was detailed in a filing with U.S. securities regulators. It would require only the approval of the U.S. Treasury to proceed because the U.S. government would be the majority shareholder of the new GM.

The company’s stock investors could be left with just 1 percent of the equity in a restructured GM with the debt-for-equity exchanges detailed in the filing. GM’s shares closed at $1.85 on the New York Stock Exchange on Tuesday. The stock would be worth only 1 cent if the first phase of GM’s plan were allowed to proceed as described.

After GM issues the new shares to pay off its debt to the U.S. government, bondholders and its major union, it said it would then commence a 1-for-100 reverse stock split. This would take the face value of the stock back up to nearly what it had been before the flood of new shares. However, GM’s existing shareholders would see their stake in the automaker nearly wiped out.

GM has said it expects to receive another $2.6 billion from the U.S. Treasury before the June 1 deadline set by the White House. That loan would bring GM’s tally up to $18 billion in loans from the U.S. government. GM must reach agreements with all of its key stakeholders before the deadline, or else it must hop in the bankruptcy boat with Chrysler.

Source: Automotive News