Bondholders say GM on risky path to bankruptcy

DETROIT (Reuters) - A committee of General Motors Corp bondholders representing more than $27 billion of GM debt on Monday called the automaker's debt-exchange offer politically motivated and legally risky, and said it had a small chance to succeed in a way that would avoid bankruptcy.

"We are deeply concerned with today's decision by GM and the auto task force to offer only a small, inequitable percentage of stock to its bondholders in exchange for their bonds," the bondholders said in a statement.

GM said earlier it would offer bondholders new shares in an attempt to cut 90 percent of its bond debt as part of a deeper restructuring.

The terms of the deal as dictated by the Obama administration's autos task force would give bondholders only a 10 percent stake in a restructured GM while reserving an almost 40 percent for the United Auto Workers.

In exchange for its larger equity share, the union would agree to take $10 billion in stock and $10 billion in cash to settle GM's obligation to a retiree health care fund.

GM Chief Executive Fritz Henderson said GM would file for bankruptcy if it was unable to secure the debt reduction target set for it by the end of next month through a voluntary bond exchange.

Representatives of the bondholders, who had sought some parity with the treatment of the UAW's unsecured claims, said in their statement that GM was on a risky path to bankruptcy.

"This offer demonstrates that the company and the auto task force, unfortunately, are pinning their hopes on an extremely risky and legally questionable turnaround in bankruptcy court, instead of engaging its lenders and workers in the very type of negotiations that could avoid such a fate," they said.

Houlihan Lokey Howard & Zukin Capital Inc has been working as the financial adviser to a committee representing the bondholders including retail investors holding about $6 billion of the automaker's bond debt.