GM to Forego $1B Debt Payment Come June 1st

[Z-06]

Wall Street Journal

GM Plants to Close Much of Summer

General Motors Corp. plans to idle most its plants for about two months this summer as the company races to cut costs and production to keep pace with sinking demand, said a person familiar with the plan. The car maker typically closes its plants for a two-week summer vacation. A GM spokeswoman declined to confirm or deny the planned closure.

Such a production hiatus -- one of GM's longest in recent decades -- promises to drain the company's revenue stream, dealing another blow to its attempt to restructure operations. GM's sales have tumbled in recent months, with declines topping 50%.

United Auto Workers union members still receive most of their pay during such shutdowns.

GM is saddled with a 113-day supply of cars and a 123-day supply of trucks sitting unsold on dealer lots as of March 31, according to Ward's Automotive Reports.The car maker closed its plants for over a month starting with Christmas week this winter.

Also Wednesday, GM's No. 2 executive toughened the company's message to bondholders, saying it doesn't plan to pay off $1 billion in debt due June 1 and instead will rely on an exchange for shares or bankruptcy-court protection to clear its balance sheet. Chief Financial Officer Ray Young, speaking to reporters on the sideline of a conference near Detroit, said the move comes even as the auto maker is finalizing details with the Treasury Department to receive an additional $5 billion in loans.

By taking a tougher public stance on bondholders, GM executives are laying the groundwork for what promises to be a messy debt-for-equity offer that they expect to launch by next week. The car maker will offer to exchange $28 billion in unsecured debt for company stock that could be rendered worthless without a significant turnaround.GM faces a June 1 deadline from the Treasury to slash its debt and gain concessions from the UAW or face possible bankruptcy.

Large GM bondholders were aware that the company was planning on missing a big payment, according to a person familiar with the thinking of a committee that holds just under half of the company's bonds.This person said the June 1 government restructuring deadline wasn't a coincidence; the government didn't want the struggling company to spend $1 billion to keep servicing its debt.Portfolio manager Greg Hopper of the Artio Global High Income Fund said that at this point, most holders of auto-related debt are professional distressed investors and know what they're getting into.

"People should be getting the sleep out of their eyes and seeing it's over," said Marilyn Cohen, president of retail bond investment manager Envision Capital. "I would imagine they're going to file [for bankruptcy] any minute... Not making a payment -- it's going to show them that this time, they mean it."Mr. Young said GM is determined to get back on its feet soon, and it will right the ship "in court or out of court." He said a trip to bankruptcy court is "probable" but indicated GM has the full backing of the government." They want us to be a viable entity when we emerge," he said. Mr. Young also said GM has begun pursuing outside investors for its Opel division in Germany. There has been speculation that Fiat SpA, the Italian auto maker vying for a Chrysler LLC alliance, could pursue a stake in Opel and Mr. Young said he isn't ruling out that company.Fiat and GM have a disappointing history of alliances, but an Opel investment could boost both auto makers. Fiat, looking to increase sales to better compete with other global auto makers, could benefit from the enormous scale of GM Europe and its access to mature markets such as Germany and the U.K.

For Opel, a tie-up with Fiat, which has strong support from the Italian government and a budding relationship with the Obama administration, could better its chances of surviving as a component of GM's engineering and design network. A Fiat spokesman declined to comment. Mr. Young also said GM is reworking its $13.4 billion loan agreement with the Treasury in an effort to receive an additional $5 billion in working capital.

In a plan submitted to the Treasury in February, GM said it would begin repaying the loans in 2012, but warned it could take several years to pay back all the money. It is unclear whether the Treasury would accept equity in lieu of some of the money.

[Teh Ricer Civic!]

That officially means that GM is in default and thus bankrupt.

[hyperv6]

Well that is what was expected to come.

Now are they going to split into good GM and bad?

[Croc]

OK guys, time to sell all the GM stock you have now. Once GM files, you'll get pennies on the dollar for shares, so at least now you'll lose less selling.

[Dragon]

OK guys, time to sell all the GM stock you have now. Once GM files, you'll get pennies on the dollar for shares, so at least now you'll lose less selling.

depending on when you bought them, pennies on the dollar might be what you get anyway

[Croc]

depending on when you bought them, pennies on the dollar might be what you get anyway

Well, now you'll get over a dollar per share, instead of literally pennies per share (if anything at all) come bankruptcy.

[Teh Ricer Civic!]

Well, now you'll get over a dollar per share, instead of literally pennies per share (if anything at all) come bankruptcy.

Nono, you see, you buy a few thousand stocks while they are IN bankruptcy for like you know 100 bucks, and if they survive YOUR RICH!!!! lol, and if not its only 100 bucks.

[Drew Dowdell]

[Croc]

Nono, you see, you buy a few thousand stocks while they are IN bankruptcy for like you know 100 bucks, and if they survive YOUR RICH!!!! lol, and if not its only 100 bucks.

No, in bankruptcy proceedings the stock becomes worthless, and when a company emerges from bankruptcy they then become publicly traded again (usually) and new stock can be issued. Buying stock just prior to bankruptcy means you just pissed away $100 you could have invested into other assets.

[Z-06]

I hope GM ends up being Benjamin Button in short time from its now old, lethargic existence to something new and vibrant and start over again towards adulthood.

It may lose its market share and intellectual assets and become a small company, but those losses should be motivation enough to wrestle back its #1 spot in profitability and market share.