The government will hold a large share of a restructured General Motors after the company emerges from bankruptcy protection, and will provide GM with about $50 billion in financing so that it can reorganize, people with direct knowledge of the situation said Tuesday.
The Treasury Department will receive about 70 per cent of the new GM, while the United Automobile Workers union will hold 17.5 per cent through its retiree health care fund. The fund also would receive warrants for an additional 2.5 per cent of stock in the new GM, with a price to be determined later, potentially giving it a total of 20 per cent.
That is about half of the stock that the UAW’s fund, called a Voluntary Employee Beneficiary Association, or VEBA, was expected to receive under plans drafted earlier this spring.
The figures were outlined to union leaders in Detroit, who met Tuesday to consider a new agreement between the UAW and GM. Bondholders will receive about a 10 per cent stake of the new company, and others will receive a smaller percentage, these people said.
A person briefed on the matter told DealBook on Friday that the UAW’s health care fund would get “substantially less” than the 39 per cent of GM that it had previously expected to receive.
GM, which has already received $19.4 billion in financing from Treasury, would get another $50 billion or slightly more in debtor-in-possession financing, which it would draw upon during its reorganisation.
The Treasury plans to create a new version of GM with its most attractive assets, like Chevrolet, Cadillac and some of its manufacturing operations. The rest of GM would be sold or liquidated.
GM is expected to seek Chapter 11 protection on Monday, the deadline set by the Obama administration for the company’s restructuring, although the initial set of papers could be filed over the weekend, allowing for the first court hearings next week, these people said.
The $50 billion-plus figure includes $7.6 billion that GM, which drew another $4 billion in federal financing on Friday, told the Treasury last week that it would need to operate after June 1.Assuming the government’s plans come about, the Treasury would own 70 per cent of GM and share a 10 per cent stake of Chrysler with the Canadian government, once the two companies emerge from bankruptcy protection.
GM is awaiting the results of an exchange offer with its bondholders, who must decide by 12:01 am on Wednesday whether to exchange $27 billion in bonds.
Few bondholders are likely to accept the offer, which called for them to receive about 41 cents per $1 in bonds. GM has said it would seek bankruptcy protection if it does not receive 90 per cent support from bondholders, which analysts saw as a near impossibility.
