Updated from 8:09 a.m. EDT
General Motors (GM - Get Report) said the amount of notes tendered by its bondholders under its debt-exchange offer was less than required by the U.S. Treasury to satisfy the automaker's debt reduction requirements.
The exchange offer expired at midnight on Tuesday. "Since these conditions, as well as certain other conditions, have not been satisfied, the exchange offers will not be consummated," GM said in a statement Wednesday.
Shares of GM were trading 16 cents lower, to $1.28 shortly before 11 a.m. Wednesday.Since not enough bondholders agreed to swap their debt for company stock it appears that GM is headed for bankruptcy protection. GM had asked bondholders to exchange $27 billion in unsecured debt for 10% of the company's stock. GM was given a deadline of June 1 by the U.S. government to restructure or begin the process of bankruptcy. GM said its board will meet to discuss GM's next steps because of the expiration of the exchange offers. The company has received $19.4 billion in federal loans. The Obama administration has said it only would provide more funds if 90% of the bondholders, as well as unionized workers, agreed to concessions that substantially reduced GM's costs. On Tuesday, the United Auto Workers said it would take a 20% stake in the automaker, down from the original plan of 39%. That seemingly freed 19% of GM's shares to sweeten the pot for the bondholders. But because the bondholder deal didn't go through, the equity freed by the UAW deal now apparently will go to the U.S. government, which may have to commit billions more for GM's restructuring in court. The government's stake in the company originally was to be 50%, according to GM's regulatory filings. But it now could be as high as 69%. The Canadian government also could get equity for up to $8 billion in aid for the automaker.