Major GM bondholders OK revised deal

By Chris Isidore, CNNMoney.com senior writer

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NEW YORK (CNNMoney.com) -- The Treasury Department and a committee of major bondholders at General Motors have reached a deal that could give creditors a larger stake in GM than previously offered as long as they agree not to fight the government's plans for a quick bankruptcy at GM.

The agreement, revealed in a Securities and Exchange Commission filing by GM (GM, Fortune 500) early Thursday, would essentially give the bondholders 10% of the company but also give them the rights to buy an additional 15% of the company's stock at a low price.

The deal is unlikely to allow GM to avoid bankruptcy, however. If anything, it might clear away potential obstacles to the government's plans to use bankruptcy as a way to turn around the nation's largest automaker.

As part of such a filing, GM would emerge with only its more profitable plants, brands, dealerships and contracts. GM's unprofitable plants, contracts and other liabilities that the company can no longer afford would be left behind in bankruptcy court.

According to Thursday's filing, the new offer is structured so that the assets of GM that would remain in bankruptcy would receive a 10% stake in a "new GM" that would be used to pay bondholders. The old GM would also technically receive the right to buy the 15% stake in the new company that emerges from bankruptcy.

In the original offer to bondholders, which was soundly rejected earlier this week, creditors would only receive a 10% stake in a new GM.

The filing also disclosed that GM will not repay the loans it has already received from the government or much of the additional federal aid it will get as part of the bankruptcy.

The government has already given GM $19.4 billion to fund operations and cover losses this year, and total help is expected to exceed $50 billion.

GM will pay back $8 billion of that sum. The government will also receive $2.5 billion in preferred shares of GM that pay a dividend and are more similar to a loan than stock.

But more than $40 billion of federal help to GM will be converted into a 72.5% stake in the new company. This means that for taxpayers to make back any of the money loaned to GM, it will have to be because shares of the new GM increase dramatically in value following an exit from bankruptcy.

A trust fund run by the United Auto Workers union would also have a 17.5% stake in the new GM, as well as the right to buy an additional 2.5% stake.