GM closer to bankruptcy as bondholders smooth way

By John Crawley

WASHINGTON (Reuters) - General Motors Corp GM.N and the U.S. government finalized plans on Sunday for the battered automaker to reorganize, as a majority of debtholders helped clear the way to a massive bankruptcy filing expected on Monday.

President Barack Obama is expected on Monday to publicly discuss GM's next steps as the federal government prepares to assume more than two thirds control of the company in exchange for tens of billions of dollars in assistance.

It would be the largest-ever industrial Chapter 11 bankruptcy petition and the third-largest in U.S. history. It is expected to be filed in New York where rival Chrysler LLC is in the final stages of a court-supervised makeover that includes an alliance with Italy's Fiat FIA.

GM has been losing market share since the early 1980s when it commanded 45 percent of the U.S. market. It has been hurt by its reliance on a truck-dominated vehicle line-up and by a deep plunge in demand as credit tightened in 2008.

Since last week, GM has been racing to complete a series of last-minute deals intended to help speed its way through a fast-track bankruptcy that would see it emerge under the majority ownership of the U.S. government.

Those deals have included a new contract for the United Auto Workers union and an agreement to spare GM's Opel brand from collapse in a deal brokered by the German government.

Bondholders have been one of the last pieces to fall into GM's complicated bankruptcy puzzle under the direction of the autos task force appointed by the White House and headed by former investment banker Steve Rattner.

Investors representing about 54 percent of GM's $27.2 billion of bonds have indicated support for a U.S. Treasury-brokered swap of debt for equity that could help speed the automaker's way through bankruptcy.