Bondholders feel that General Motor’s offer lacks punch.

The Largest U.S. automaker and former cornerstone of American manufacturing will likely be headed to bankruptcy court within the next week.  This news comes as General Motors and its bondholders could not come to an agreement Tuesday.

The reason that the bondholder negotiations are so important to the future of GM is that as the current terms stand, the interest payments are completely unmanageable for GM.  The first of the payments on the bonds are due June 1st, which also corresponds to the deadline that the U.S. government put in place for GM.  GM is supposed to have reached concession agreements with bondholders, creditors, its union, and others by this deadline.

Right now, the bondholders are the biggest obstacle for GM, because the bondholders feel that GM is not offering them a fair share of what is rightfully theirs.  GM is offering them payment in the form of stocks for all of the money they are owed.  The problem is that the stocks at current value are worth far less than the money they are looking for.  Based upon Tuesday’s closing price, GM would be giving the bondholders $324 worth of stock for every $1000 they are owed.  This may seem like not very much, but it is very possible that the bondholders could receive substantially less than that if GM files for bankruptcy.

GM needs about 90% agreement among the bondholders, but those that agreed with the terms Tuesday were definitely in the minority.  The percentage of bondholders that agreed to GMs terms on Tuesday was estimated in the single digits.  The treasury department has said that negotiations can continue up until the June 1st deadline, but Tuesday is significant in that it made it appear that the two sides aren’t even close to reaching an agreement.

In related news, Chrysler which filed for bankruptcy protection last month could emerge from Chapter 11 protection in the near future.  A bankruptcy judge will listen to Chrysler’s plans to join up with Fiat on Wednesday.

Since Chrysler’s bankruptcy, the news coming from their camp seems to be mostly positive.  One of the brightest spots is that sells did not drop off as much as originally feared.  GM should keep an eye on how Chrysler is fairing in the coming days.  This could help GM decide how much they want to give in to their bondholders.

Chrysler’s bankruptcy could be just what it needed to turn the company in the right direction.  Personal bankruptcy works in much of the same way, because it gives individuals a second chance.  If you are in a dire financial situation, you should contact a Dallas-Fort Worth Bankruptcy attorney today to see if bankruptcy can help you.