GM Bankruptcy In Bondholders' Hands

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(CBS/ AP) We forgave billions in debt, now give us more money. This is the message General Motors bondholders have sent to the flailing automaker along with the threat of pushing the company into bankruptcy, according to a newspaper report.

All week, GM has been in negotiations with bondholders, who want the automaker to give them 50 cents on the dollar, instead of the 30-cent return currently offered in an effort to cut the company's unsecured debt to $9.2 billion, part of its requirement for accepting a $13.4 billion federal loan package, sources tell the Detroit News.

Should GM fail to reach a deal with its bondholders, along with United Auto Workers, the government could take back the $9.4 billion it has already dispensed, and force the company into bankruptcy.

The Detroit News sums up the bondholders' argument: "GM's hourly retiree health care obligations totaled $47 billion before the company and the UAW in 2007 agreed to reduce GM's liability to about $35 billion, to be paid into a trust to be run by the union. The company already has allocated $15 billion for that. GM wants to pay half of the remaining $20 billion in cash and half in company stock, which is a target included in GM's loan terms."

"GM is working diligently with all of our stakeholders as we restructure our business and work toward meeting the requirements of our loan agreements with the government," spokeswoman Renee Rashid-Merem told the newspaper.

The report follows Tuesday's news that GM will cut 10,000 salaried jobs, citing the need to restructure itself with a government deadline looming.

The automaker said it will reduce its total number of salaried workers to 63,000 from 73,000 this year. About 3,400 of GM's 29,500 salaried U.S. jobs are expected to be eliminated.

The company's statement said that the separations would be done through GM's severance plan, so there would be no buyout or early retirement packages as GM had offered in the past.

In its plan to Congress submitted late last year, GM said work force reductions would be necessary in order for it to be viable for the long term. Most of the cuts are expected to take place by May 1.

Meanwhile, the automaker would receive a tax break in the Obama administration's proposed $790 billion stimulus bill after arguing its government-led restructuring would unintentionally lead to at least $7 billion in tax liabilities.

General Motors, which received a $13.4 billion lifeline from the Bush administration last year, would have been required to pay additional income taxes from its government loans, potentially undermining its turnaround plan.

Lawmakers said several conditions in the Detroit company's loan agreement with the government could trigger an "ownership change" under the tax law. That tax law was designed to prevent companies from merging to avoid a hefty tax bill.

The loan agreement gives the government shares in the company in exchange for the financing and requires GM to convert outstanding debt into equity and make payments in the form of stock to a health care fund for retired workers.

All three of the provisions could trigger the ownership change clause. GM officials said a major part of the federal loans would have been used to pay income taxes instead of funding the company's restructuring.

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