This morning, General Motors Corp. (GM) announced in a Form 8-K filing that the U.S. Treasury Department has proposed details of a reorganization plan to GM in the event that GM seeks bankruptcy protection and bankruptcy court approval for the sale of substantially all of its assets to a newly organized company (New GM) pursuant to Section 363 of the Bankruptcy Code (363 Sale). Following the proposed 363 Sale, the U.S. Treasury would receive a 72.5% equity stake in New GM in exchange for providing debtor-in-possession financing to GM for the winding down and liquidation of its remaining assets. Under the Treasury proposal, GM’s union-run health trust, Voluntary Employee Beneficiary Association (VEBA), would receive a 17.5% equity stake in the New GM plus warrants to acquire an additional 2.5% of New GM common equity outstanding as of December 31, 2009. New GM would be expected to emerge from Chapter 11 bankruptcy with approximately $17 billion in total consolidated debt.

Most significantly, under this new proposal, existing GM bondholders would receive a 10% equity stake in New GM in exchange for approximately $27.2 billion in bonds, in addition to “warrants to purchase an aggregate of 15% of the equity of New GM.” However, to receive such consideration, Treasury has indicated that a sufficient number of bondholders must have provided statements of support that they will not oppose the 363 Sale to Treasury by 5:00 pm EDT on Saturday, May 30, 2009. If sufficient bondholder support is not received by the deadline, Treasury has indicated that the amount of common equity and warrants that it would propose to satisfy the claims of the bondholders “would be substantially reduced or eliminated.” In its press release, GM stated that the Treasury proposal “provides incentives for GM’s unsecured bondholders to support GM’s restructuring efforts” in the event of a 363 Sale. GM also states that it has been informed by advisors to the unofficial committee of unsecured GM bondholders that the unofficial committee and other bondholders who collectively hold approximately 20% of the bonds’ value “support the economic terms” of Treasury’s proposal. Just yesterday, GM announced that its prior exchange offer to bondholders had failed.