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GM Bankruptcy Looms As Bondholders Shun Tender Offer

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DETROIT — General Motors bondholders felt they deserved something like a 58 percent stake in the company in exchange for their billions of dollars in debt. What they were offered wasn't even close.

The bondholder rejection virtually ensures GM will file for Chapter 11 bankruptcy protection within days.

"They said no. That's it. They tried. That's why they're going to have to file," said John Pottow, a professor at the University of Michigan who specializes in bankruptcy.

The government, which has already extended nearly $20 billion in loans to GM, ordered the company to come up with a plan that 90 percent of its bondholders would agree to. But the government allowed it to offer only 10 percent of the company's stock. GM was forced to withdraw the offer Wednesday after it fell far short.

A person familiar with discussions between GM and the government told The Associated Press any Chapter 11 bankruptcy filing would probably come around the government's Monday deadline for GM to finish restructuring or enter court protection. The person asked not to be identified because the talks are private.

To avoid an in-court restructuring, the government had said GM must shed debt, cut labor costs and close plants.

GM bondholders are owed about $27 billion, the largest chunk of GM's roughly $58 billion in debt. They were offered the 10 percent stake to wipe out the debt, well short of the 58 percent they wanted.

A GM bankruptcy protection filing would be the fourth-largest in U.S. history and the largest for an industrial company.

Like its crosstown rival Chrysler, which was angling Wednesday for a judge's permission to sell most of its assets to a group headed by an Italian automaker, GM was pulled down by debt, high labor costs and a devastating sales slump.

The government has poured billions into the two companies, fearing the ripple effects of catastrophic job losses might push the economy into a depression. The pair employ more than 126,000 people in the U.S., and hundreds of thousands of others rely on the companies working for parts suppliers, dealerships and other associated businesses.

GM spokesman Tom Wilkinson said company's board would meet later this week to decide its next move. He would not reveal what percentage of bondholders accepted the debt-for-equity offer, but GM said it was "substantially less" than needed.

Meanwhile, Germany pressed for an independent future for General Motors Corp.'s Europe-based Opel unit. The foreign minister said "the lights must not go out" on Opel even as the parent company heads for bankruptcy court.

Opel's supervisory board approved a plan to pool GM's European assets _ including plants, sales operations and patents but excluding Sweden's Saab brand _ for a new investor, said Karin Kirchner, a spokeswoman for GM Europe.

GM would choose any new investor, but Germany would decide on whether a new owner would get further government assistance, and if so what kind. But a high-level meeting hosted by Chancellor Angela Merkel to discuss the future of Opel ended Wednesday night without a decision. Germany's economy minister, Karl-Theodor zu Guttenberg, said after talks that lasted most of the night that Germany does not yet have the security it needs to provide bridge funding for Opel.

Two investors _ Italy's Fiat Group SpA and Canadian auto parts maker Magna International Inc. _ remain in the running but U.S. financial investor Ripplewood Holdings LLC has bowed out.

Offering a glimmer of hope that GM might avoid seeking bankruptcy protection, the United Auto Workers union agreed to take only a 20 percent stake in GM, down from the original plan of 39 percent.

Analysts speculated that the move would free up 19 percent of GM's shares to be used elsewhere, perhaps to sweeten the deal for bondholders. But that never happened, and now the U.S. government, which may have to commit billions more to GM's court-supervised restructuring, stands to become a majority owner.

Under the debt exchange plan announced by GM last month, bondholders were to get 225 shares of GM stock for every $1,000 they had in debt, a 10 percent stake. Current stockholders would end up owning just 1 percent of the company.

GM's biggest bondholders, mostly big banks and other institutional investors, have opposed the swap from the start. Smaller bondholders _ individual investors like retirees and families _ have complained about the terms, too.

Some analysts said GM's bondholders may be holding out for better terms in bankruptcy court, where they would normally get up to 40 percent of their holdings back.

Many large investors also hold insurance policies known as credit default swaps that would reimburse them if GM goes under. That might be a better deal than battered GM stock.

For the bondholders, "If you're bullish on the prospects of the company, you might think that's a great deal," Pottow said. "If you're bearish on the prospects of the company, you might not think that's a great deal."

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Associated Press Writers Philip Elliott in Washington and Geir Moulson in Berlin contributed to this report.