GM May Be Heading For Quick, Pre-Packaged Bankruptcy

General Motors Corp. (GM: 1.12 0.00 0.00%) appears to be heading to bankruptcy court for a quick pre-packaged bankruptcy. This is after the bond holders who hold $27 billion in debt agreed to an offer that would give them 10% of the restructured GM with an ability to take it to 15% with warrants. They must agree that assets will be sold to a new company in bankruptcy (good GM/bad GM).

This is lower than the 58% ownership that they were looking for originally. It is also believed that there are treasury incentives to back up the bondholders. GM indicated that it may not make $1 billion of debt payments on June 1. However, it is believed that this will be covered by the Government.

The Government is likely to hold 70% of the equity of GM post bankruptcy, which is reimbursement for $20 billion already given to the company and an expected $40 billion more when a filing occurs. Some is this will be for the under-funded pension, which is near $13 billion. The UAW will have 20% of the company.

Pontiac will be phased out, while negotiations to sell Hummer and Saab continue.  GM will emerge with $25 billion of secured debt post bankruptcy.

Overall, Ford (F: 5.56 0.00 0.00%), Honda (HMC: 28.93 0.00 0.00%), Nissan (NSANY: 11.79 0.00 0.00%) and Toyota (TM: 79.51 0.00 0.00%) are likely to be beneficiaries from any lost sales, although a quick bankruptcy may keep this to a minimum (there are rumors that Chrysler is close to an exit).

Major suppliers that could impacted in the near-term with lower volumes are: Magna (MGA: 32.54 0.00 0.00%), Lear (LEA: 1.40 0.00 0.00%), American Axle and Manufacturing (AXL: 2.16 0.00 0.00%) and ArvinMeritor (ARM: 2.42 0.00 0.00%).