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May 31 (Bloomberg) --
General Motors Corp. intends to file for bankruptcy before 8 a.m. New York time tomorrow and will name turnaround specialist Al Koch as its chief restructuring officer, according to people familiar with the plans.
Koch, a managing director at the advisory company AlixPartners LLP in New York, will report to Fritz Henderson, GM’s chief executive officer, according to the people, who asked not to be identified because the plans haven’t been announced. After GM’s most valuable assets are stripped off into a new corporate entity majority owned by the government, Koch will be in charge of unwinding the remaining assets.
The U.S. Treasury and GM, battered by almost $88 billion of losses since 2004, prepared the way for tomorrow’s planned bankruptcy filing by getting a majority of bondholders to agree to a revised reorganization plan. About 54 percent of the investors, or 975 institutions, backed a swap of debt for equity and warrants, Elliot Sloane, spokesman for an ad hoc committee of bondholders, said today.
“The bondholders essentially have the power to tie this thing up in bankruptcy and disagree, so it’s a much smoother process if you have the major stakeholders all in agreement going into the bankruptcy,” said Len Blum, managing director at investment-banking firm Westwood Capital LLC in New York. “The quicker the better, in terms of bankruptcy.”
Sweetened Offer
GM, the largest U.S. automaker, and the Treasury sweetened their first offer to try to win more support, requiring an unspecified percentage of bondholders to agree to the terms by 5 p.m. yesterday. Sloane said the final total may be less than 54 percent due to overlap between those taking GM’s first exchange offer and those backing this version.
A veteran turnaround specialist, Koch served as interim chief financial officer at Kmart Corp. during the retailer’s bankruptcy, and was interim president and CEO at Champion Enterprises Inc., the world’s largest builder of manufactured homes.
GM, contemplating a sale of its assets to a new company, proposes to give 10 percent of its equity to the old GM to pay bondholders and other creditors and issue warrants for as much as 15 percent more. The U.S. Treasury is “satisfied” with the bondholder support, GM said in a statement.
Earlier Offer
The company, surviving on $19.8 billion in U.S. Treasury loans, said its first bond-exchange offer, for a 10 percent equity stake for holders of $27.2 billion in debt, failed earlier this week.
The revised plan was disclosed May 28. GM got 20 percent of debt holders to support the offer before announcing it and another 15 percent tendered their debt in the automaker’s failed exchange offer, creating the possibility of overlap among the bondholders now listed as backing the new plan, Sloane said in a telephone interview.
A GM spokesman, Tom Wilkinson, declined to comment on the results of the bondholder offer.
The new stake is worth almost five times the 10 percent offer in the first exchange because the U.S. agreed to convert $50 billion of debt to equity, up from the $10.7 billion that the Treasury committed to under the previous proposal, according to Eric Siegert, senior managing director at Houlihan Lokey Howard & Zukin and financial adviser to a bondholder committee.
“This dramatically improves the capitalization of GM and leads to much higher equity values,” Siegert said on a May 29 conference call with bondholders.
The U.S. Treasury’s $60 billion commitment and agreement to take a 72.5 percent equity stake implies a $69 billion enterprise equity value for the new GM, Siegert said. That means the government won’t be paid in full for its equity investment until the value of GM reaches $69 billion and implies that bondholders and other creditors would have received $14 billion at that point, he said.
United Auto Workers
GM also got approval this week from the United Auto Workers union for an agreement that may save the automaker $1.3 billion annually. The deal also calls for a health-care fund for union retirees with $20 billion in claims to get a 17.5 percent stake in a reorganized GM and $9 billion in notes and preferred stock.
“GM going through bankruptcy is a very positive thing for the auto industry: They should emerge as a reasonable competitor,” Blum said. “The only thing that’s been holding GM back is labor contracts and relationships with debtors and franchisees. All that should be cleansed in a bankruptcy.”
The timing of GM’s intended bankruptcy filing and the naming of Koch were reported earlier today by the Wall Street Journal.
To contact the reporters on this story: Caroline Salas in New York at
csalas1@bloomberg.net; John Hughes in Washington at
