General Motors preparing to announce bankruptcy-WEB ONLY

With the clock ticking on a June 1 government deadline to
restructure, General Motors Corp. worked feverishly yesterday to shore up its
global businesses to clear the way for a speedy reorganization in bankruptcy
court.

GM, part of American life for more than 100 years and once the country’s
largest employer, is expected to file for Chapter 11 bankruptcy protection at 8
a.m. today, according to people familiar with the company’s plans. They
declined to be identified because the plans haven’t been officially
announced.

Beyond the bankruptcy announcement today, GM is expected to reveal 14 plants
it intends to close and name the buyer of its Hummer division.

GM plans to name turnaround executive Al Koch to serve as its chief
restructuring officer to help the company through bankruptcy protection, said a
person familiar with the matter. Koch, a managing director with AlixPartners LLP, is a veteran turnaround
specialist who helped Kmart Corp. through its Chapter 11 reorganization. He will
lead the separation of the automaker’s assets into a “New GM” and the remaining
parts of the company that will form “Old GM.” Koch will lead the management team
that winds down the “Old GM” company once the automaker emerges from
bankruptcy.

A majority of the Detroit automaker’s unsecured bondholders have accepted a
deal viewed as crucial to reorganization, and Germany agreed to loan $2 billion
to GM’s German unit, Opel, as part of its acquisition by a Canadian auto parts
supplier.

The moves don’t change much for GM, but better prepare it for a bankruptcy
protection filing, said Rebecca Lindland, an auto analyst for the consulting
firm IHS Global Insight.

“The more agreements GM has with its interests, the better the bankruptcy is
going to go,” she said. “It’s not a game changer at all.”

It would be the largest industrial bankruptcy in U.S. history, and the
fourth-largest overall. In addition, a GM bankruptcy would be unprecedented as
the federal government would pump billions more into the company, and take a
72.5-percent interest in the automaker.

Yesterday, a group of large, institutional bondholders, representing 54
percent of GM bondholders, agreed to exchange their unsecured bonds for a 10-percent stake in a newly restructured company, plus warrants to purchase a
greater share later. They had balked at an earlier offer, that gave them 10
percent of the company without the warrants.

The Treasury, which has been guiding the Detroit automaker toward a rescue
plan, notified the company yesterday the response was sufficient to move forward
with a pre-packaged bankruptcy filing. In a previous exchange offer, the
Treasury demanded participation of 90 percent of bondholders, representing
unsecured debt of $24 billion.

President Barack Obama is expected to give a speech addressing the Detroit
automaker’s future just before noon today. GM CEO Fritz Henderson
has scheduled a news conference in New York to directly follow the president’s
remarks at 12:15 p.m.

GM already has received about $20 billion in government loans and could get
$30 billion more to make it through what is expected to be a 60- to 90-day
reorganization in bankruptcy court.

In Germany yesterday, the government agreed to loan GM’s Opel unit $2.1
billion, a move necessary for Magna International Inc. to acquire the
company.

The Canadian auto parts supplier Magna will take a 20-percent stake in Opel
and Russian-owned Sberbank will take a 35 percent, giving the two businesses a
majority. GM retains 35 percent of Opel, with the remaining 10 percent going to
employees.

The German funds are available to Opel immediately, as it attempts to shield
itself from cuts if GM files for bankruptcy protection. Opel employs 25,000
people in Germany, nearly half of GM Europe’s work force. Under the deal, four
factories in Germany would stay open saving jobs.

But jobs in other European countries may not be safe, Lindland said.

“As those (German) jobs are becoming protected, other jobs in other parts of
Europe are put at risk,” she said.

Treasury Secretary Timothy Geithner, who was traveling to China, followed the
developments closely. The Treasury on Thursday offered bondholders 10 percent of
a newly formed GM’s stock, plus warrants to buy 15 percent more to erase the
debt. Last week, GM withdrew an offer of 10-percent equity after only 15 percent
of the thousands of bondholders signed up.

The current 54-percent acceptance represents only $14.6 billion, but by
lining up support in advance of a bankruptcy protection filing, GM is likely to
find it easier to persuade a judge to apply terms of the sweetened offer to the
rest of its unsecured debt.

It could also help the automaker get through the court process more quickly,
said Robert Gordon, head of the corporate restructuring and bankruptcy group at
Clark Hill PLC in Detroit.

“The more consensus you have, the more likely it is you’ll be able to move
through the bankruptcy process in an expeditious fashion with less resistance,”
Gordon said.

The company made a huge stride toward restructuring Friday when the United
Auto Workers union agreed to a cost-cutting deal.

GM’s fate and the federal government’s intervention was scrutinized on
several Sunday-morning talk shows.

“I think the government auto bailout was a big mistake,” said Sen. Mitch
McConnell (R-Ky.) on CNN’s “State of the Union” program. “We could have let
these companies go through the bankruptcy process much earlier…without all of
the additional government money, and ended up in the same place.”

In a typical Chapter 11 bankruptcy case, the company files a plan of
reorganization that must be voted on by creditors. In each class of creditors,
the plan would have to be approved by holders of two-thirds of the claims and a
majority of the number of individual creditors who vote.

But the GM case is anything but ordinary, and it appears the company will
sell some or all of its assets to a new entity that would become the new GM,
rather than submit a plan to reorganize the old company.

Under a so-called Section 363 sale, the prospective buyer and seller present
a fully negotiated asset purchase agreement for approval by the court.
Creditors still can lodge objections, but GM could avoid the drawn-out fights
between competing creditors, such as bondholders and workers, that often
occur.

Chrysler LLC, which filed for bankruptcy protection April 30, chose a similar
path. A judge heard three days of testimony and arguments last week over the
sale of most of Chrysler’s assets to Italian carmaker Fiat Group SpA.

U.S. Judge Arthur Gonzalez is expected to approve the sale today, pushing
Chrysler closer to its goal of a speedy exit from bankruptcy protection. But an
appeal is likely from three Indiana state pension and construction funds, which
invested in Chrysler debt and say the deal isn’t fair. That may force Chrysler
to further postpone the deal’s closing.

GM’s stock tumbled to the lowest price in the company’s 100-year history on
Friday, closing at just 75 cents per share after trading as low as 74 cents. In a Chapter
11 bankruptcy reorganization, the shares would become virtually worthless.