New General Motors to be split into two units as bankruptcy filing speeds toward certainty

CNBC reports that a new General Motors will be split into two units of most and less profitable as its bankruptcy filing quickly approaches.


General Motors is in "intense" and "earnest" preparations for a possible bankruptcy filing, a source familiar with the company's plans told Reuters Tuesday.

A plan to split the corporation into a "new" company made up of the most successful units, and an "old" one of its less-profitable units, is gaining momentum and is seen as the most sensible configuration, said another source familiar with the talks.

If the plan goes through, the new GM is expected to assume some previous creditor debt from bankruptcy proceedings, such as secured debt, said the second source, adding that GM [GM 1.97 -0.30 (-13.22%) ] bondholders are likely to lose substantial value in bankruptcy.

Certain GM dealer and litigation claims would also be hurt if the new company structure is used as part of a company bankruptcy, said the second source.

The sources asked for anonymity, saying they were not authorized to speak on the record.

GM Chief Executive Fritz Henderson has said the company prefers to restructure out of court but could go to court if needed. GM declined to comment further.

Moody's Investor Service maintains its view for a 70 percent risk of bankruptcy for Detroit's three automakers given the difficulty of restructuring out of court, the ratings agency said.

In the event of a bankruptcy filing by any of the Detroit automakers, there is a high likelihood that the government will act to prevent an uncontrolled bankruptcy in order to contain the severe disruption to the supply base and the broader economy, Moody's said.