Government Taking Hard Line on Auto Creditors

The federal government is taking an increasingly hard line with the creditors of General Motors Corp. and Chrysler LLC, trying to squeeze billions of dollars in concessions out of banks, bondholders and others.

In both cases, the U.S. is directly and not-so-directly managing negotiations for the car companies as they prepare for what could be Chapter 11 bankruptcy filings.

Chrysler has been told by the Treasury Department to get a deal done with creditors by the end of April, while GM has until the end of May. A Treasury spokeswoman declined to comment on dealings with GM and Chrysler debtholders.

GM's restructuring could play out in one of two ways. It could successfully negotiate cost-cutting concessions with unions and bondholders so it can become viable outside of bankruptcy. Or, in the more likely scenario, it will reorganize by filing for Chapter 11, said people familiar with the situation.

The Treasury Department is pushing GM to offer its bondholders, who are owed $29 billion, a small portion of shares in the company. That's a sharp cut from a bond-exchange offer GM made two weeks ago, which included about $8.5 billion in cash and new debt in the company as well as 90% of GM's stock, said people familiar with the terms.

The Treasury, which has pumped $13.4 billion into GM to keep it afloat, believed the earlier plan was too generous to bondholders, said people familiar with the matter.

The new debt-exchange offer, which could be presented as soon as next week, is sure to face strong resistance from bondholders. But the offer may be a last chance at avoiding bankruptcy, which GM worries would be more expensive and disruptive than an out-of-court solution.

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