NEW YORK (CNNMoney.com) -- Preparations for a possible bankruptcy filing at General Motors have become "intense and earnest", according to a source familiar with the company's plans.
The source, who spoke on the condition of anonymity, said GM still hopes to win concessions from its creditors and unions that will allow it to avoid bankruptcy. But the June 1 deadline given to the company by President Obama and the Treasury Department to reach deals or go into bankruptcy has caused a pick-up in preparations, the source said.
"We're talking about what could be the largest industrial company to ever go bankrupt. The preparations better be intense and earnest," the source said. "The preparations are being made because there's a short time frame here."
GM owes about $28 billion to holders of its unsecured debt. It wants those creditors to agree to take an equity stake in the company in return for reducing that debt by at least two thirds.
An ad hoc committee representing GM bondholders have objected to this proposal due to the uncertain value of GM's stock going forward.
A person involved with that committee said Tuesday that the reports about bankruptcy preparations at GM did not change the creditors' views. This source added that there have been no formal talks between the bondholders and the company since Obama's deadline was set last week, but that the committee is eager to hold negotiations.
"We're very concerned about the state of the company and the possibility of bankruptcy," the source involved with the committee said. "We're still trying to work to try to get something done outside of bankruptcy, which is our hope.
The auto task force overseeing $13.4 billion in federal loans GM has already received declared last month that neither the company nor its competitor Chrysler LLC were viable under turnaround plans the companies submitted Feb. 17.
Chrysler was given only 30 days to reach a new alliance with Italian automaker Fiat. GM (GM, Fortune 500) was given 60 days to get creditors to agree to swap debt for equity, and to win further concessions from the United Auto Workers union. The government also forced GM Chairman and CEO Rick Wagoner to resign last week.
New GM CEO Fritz Henderson said at his first press conference last week that he would not have taken the job as CEO if he wasn't willing to take the company through the bankruptcy process, although he said he still preferred to reorganize the company outside of bankruptcy court.
Henderson also said the company would not wait the full 60 days to file for bankruptcy if it became clear it could not reach deals with the creditors and unions.
"If it's quite clear it can't be done, we'll move faster," said Henderson. "More time isn't going to help the process."
Shares of GM lost about 10% in midday trading Tuesday on the reports of bankruptcy preparations. The already battered shares have lost more than 40% of their value since President Obama raised the threat of bankruptcy on March 30.
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