Analyst: GM bankruptcy risk increases

Washington -- The odds of General Motors Corp.'s filing for bankruptcy protection have increased, JPMorgan Chase said in a research report Monday.

One big factor is the government's $13.4 billion in loans to GM, which also may have to be restructured -- along with $28 billion held by GM's bondholders and $20 billion in obligations to the United Auto Workers.

"If the government has now truly realized that it will eventually have to 'restructure' its own loans to GM (similar to Citi or AIG), a bankruptcy may be much more politically necessary (i.e. judge-imposed changes to the government's claims would be politically less painful)," wrote Himanshu Patel, an auto analyst for JPMorgan.



GM has been planning for weeks for a possible bankruptcy filing if it can't meet a June 1 deadline to win tough concessions from its bondholders and the United Auto Workers union demanded by the Obama administration's auto task force.

GM's president and CEO Fritz Henderson said last week that the company is preparing for a bankruptcy filing if necessary but said the company's preference is to win needed concessions outside of bankruptcy court. Earlier this month, Henderson said bankruptcy is now "more probable."

"If it can't be done outside of a bankruptcy process, it will be done within it," Henderson said.

GM's stock was off sharply in early trading Monday.

One big issue is how much GM's creditors and bondholders could delay the company's exit from a quick bankruptcy under Section 363 of the bankruptcy code. That allows for an asset sale that would let the government split the healthy parts off from the rest of the company.

One scenario under consideration would be to split the Detroit automaker into a "good" and "bad" company -- allowing the good part of the automaker -- assets like Chevrolet, Buick and Cadillac -- to emerge within a month, while the rest of the company could remain in bankruptcy for an extended period.

GM plans to unveil a harsher offer to its bondholders this week than the one it proposed last month. This new offer could be as little as 20 percent of GM's equity, versus an offer last month of 8 cents on the dollar, 16 cents of new debt and up to 90 percent of GM's equity.

"This development makes us think that a bankruptcy is more likely," Patel wrote of the new harsher offer.

Patel said he is expecting a harsher offer to the UAW as well. GM had reportedly proposed last month to the UAW it accept $10 billion in preferred stock with a 9 percent interest rate and $10 billion in cash over 20 years.

Ford Motor Co. -- which hasn't accepted government loans -- recently won a deal to restructure its UAW health care trust fund with $6 billion in cash and the remaining $7 billion in Ford stock or cash. But Ford has said if GM or Chrysler get further concessions from the UAW, the Dearborn automaker expects it would receive the same deal.

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