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GM, Chrysler Positioned to Move Through Bankruptcy at Top Speed

Chrysler CEO Robert L. Nardelli testified yesterday that he expected that a new Chrysler could emerge from bankruptcy as early as today.
Chrysler CEO Robert L. Nardelli testified yesterday that he expected that a new Chrysler could emerge from bankruptcy as early as today. (By Jeremy Bales -- Bloomberg News)

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By Peter Whoriskey and Tomoeh Murakami Tse
Washington Post Staff Writers
Friday, May 29, 2009

The Obama administration's plan to revive two of the nation's major automakers powered forward yesterday, with Chrysler pushing to create a new company in bankruptcy and General Motors readying itself for a similar trip to court by offering a new deal to bondholders.

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The government, which so far has committed more than $30 billion combined to the companies, is aiming to use the bankruptcy process to strip the automakers of their overwhelming debts and reconstitute them as streamlined, more viable global competitors.

As it moved ever closer to a bankruptcy filing, GM sought yesterday to strike a deal with its bondholders so they would be less likely to fight bankruptcy proceedings in court.

The GM bankruptcy plan, which has been crafted by the company and the Obama administration, aims to sell off the automaker's productive assets to a new revived GM.

GM announced yesterday that if a substantial number of bondholders agree to support its bankruptcy plan, they collectively would receive a 10 percent stake in the new company and the ability to buy an additional 15 percent share if the recovery of the automaker reaches certain thresholds.

"The U.S. Treasury proposal announced today provides incentives for GM's unsecured bondholders to support GM's restructuring efforts," GM said in a statement. "Implementation of this proposal would result in a New GM with a healthy balance sheet, putting the new company on a clear path toward long-term viability and success."

Under the deal, the value of the investors' $27 billion in bonds would be wiped out. But GM warned that if the group opposes the bankruptcy plans, the Treasury would push to "substantially" cut their stakes in the reorganized company.

An informal group of GM bondholders, who hold about 20 percent of GM's $27 billion of bonds, has indicated it would support the deal. The others have until 5 p.m. tomorrow to show their support.

In a statement, the group said the new deal "gives the bondholders the opportunity to recover a greater portion of their original investment than was previously offered."

Yet the group continued to argue that the United Auto Workers' health-care trust, known as the VEBA, is unfairly getting a larger stake in the new GM.

"While the Committee continues to remain troubled by preferential treatment that the UAW VEBA is receiving compared to the bondholder class -- rejecting this offer in the expectation that the bondholders will do better in a litigated outcome was a risk the Committee is unwilling to take," the statement said.

In bankruptcy, GM is set to receive about $30 billion in new aid from the U.S. Treasury, while Canada is poised to contribute another $9.5 billion.

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