GM Shares Plunge Following Bankruptcy Fears

Talk of GM's imminent filling for Chapter 11 has had nothing but the expected result on the company's shares, as they dropped by 16 percent today following the news that the US Treasury Department is directing the manufacturer towards bankruptcy. The 17 percent drop in shares translates into a 36 cent drop, bringing the value of a GM share down to $1.66 on the New York Stock Exchange (NYSE).

As we reported earlier today, GM is supposed to be pushed by the US Treasury Department towards Chapter 11, as the US government is looking for a fast and "surgical" bankruptcy, possibly using an additional $5 billion to $7 million federal financing to enter and exit bankruptcy in as little as two weeks.

The news was further confirmed as inside sources told Reuters that GM is in "intense" and "earnest" preparation for entering Chapter 11 protection. Even more so as the bondholders and the UAW are likely not to reach an agreement with the manufacturer, making bankruptcy the only viable option.

The bondholders on the other hand are said to prepare legal arguments against GM's filling, according to the Wall Street Journal. This is because such a move might force the bondholders to accept big losses on their investments.

This, despite Standard and Poor's attempt to reassure them that in case of a filling, holders of its secured revolver would get a 70 to 90 percent recovery of what they owned. It is said that the bondholders went as far as organizing an ad hoc committee who have made their concerns known to the Obama administration.

Of course, accusations started, as Canadian bondholders claim that GM pulled about $600 million out of its Canadian subsidiaries, just because company officials knew that the company is nearing insolvency. GM responded in court fillings that the allegations were false.