May 28 (Bloomberg) -- General Motors Corp. and the U.S. Treasury reached an agreement with some of the automaker’s largest bondholders to smooth the way through bankruptcy.

GM, contemplating a sale of its assets to a new company through bankruptcy, would give 10 percent of its equity to the old GM to pay bondholders and other creditors and issue warrants for as much as 15 percent more, the Detroit-based automaker said in a U.S. regulatory filing today.

GM is trying to restructure debt and labor agreements before it files for bankruptcy protection June 1, according to people familiar with the matter. Advisers to the bondholders, representing 20 percent of the $27.2 billion in principal, support the terms of the plan, GM said in the filing. The Treasury is requiring an unspecified percentage of bondholders agree to the terms by 5 p.m. New York time on May 30, GM said.

“They need acceptance from the various classes of creditors so that GM can exit bankruptcy in a timely manner,” said Sean Egan, president of Egan-Jones Ratings Co. in Haverford, Pennsylvania. “It’s absolutely critical because if the unsecured creditors don’t accept the plan, they could tie up bankruptcy for the next 2 1/2 years.”

Treasury would get 72.5 percent of GM’s equity and 17.5 percent would go to a union health trust under the plan, the automaker said. Bondholders were previously offered a 10 percent stake.

35 Percent Acceptance

GM, which has taken $19.4 billion in U.S. Treasury loans, said this week that its bond exchange failed. The offer aimed to get 90 percent of bondholders to swap their claims for a 10 percent stake in the automaker ahead of a government-imposed June 1 deadline to restructure or file for bankruptcy.

GM got about 15 percent of bondholders to participate in its failed debt exchange offer before it expired May 26, according to a person familiar with the situation. That doesn’t include the 20 percent of bondholders who agreed to support the new plan, said the person, who declined to be identified because the negotiations are private. GM’s reorganization plan now has support of holders owning about 35 percent of the bonds, according to the person.

The revised offer “represents the best alternative for bondholders in the current difficult and dire situation,” the ad hoc committee of GM bondholders said in an e-mailed statement. The Treasury plans to give additional funds to GM and convert about $40 billion in funds into stock, “vastly improving the balance sheet of the company and substantially increasing its equity value.”

Union Treatment

The committee remains “troubled by preferential treatment” given to a union retiree-medical fund yet “rejecting this offer in the expectation that the bondholders will do better in a litigated outcome was a risk the committee is unwilling to take,” the statement said.

A group of individual GM bondholders called Main Street Bondholders said in a statement that they reject the new offer, citing the “gross unfairness in giving unions an estimated five times more dollar value per claim than the small bondholders.”

GM’s plan spells out the debt to be carried by the “new GM,” which consists of $8 billion in new loans from the U.S. Treasury, $2.5 billion owed to the United Auto Workers union fund and $6.5 billion in other borrowing. Treasury also will get $2.5 billion in preferred shares that pay a 9 percent annual dividend.

A portion of the debt financing for the new GM may be provided by the governments of Ontario and Canada, according to the filing. In that case, those governments would receive part of the preferred stock and common equity of the new company allocated for the U.S. Treasury.

Bonds, Shares Up

The ad hoc committee of GM bondholders has been in contact with about 100 institutions representing about $12 billion of bonds throughout the restructuring talks, according to a person familiar with the group. The committee’s members have included Capital Research & Management Co. of Los Angeles and San Mateo, California-based Franklin Resources Inc., the person said.

The 10 percent in shares and warrants would be returned to the old company for distribution among the unsecured creditors with claims against GM, the vast majority of which would be the bondholders, a person familiar with the situation said.

GM’s 8.375 percent bonds due in July 2033 climbed 3.875 cents on the dollar to 11 cents, according to Trace, the bond- pricing service of the Financial Industry Regulatory Authority. The debt yields 75 percent.

GM fell 3 cents, or 2.6 percent, to $1.12 in New York Stock Exchange composite trading. The stock has fallen 65 percent this year.

Credit-default swaps protecting the automaker’s bonds for five years fell 1 percentage point to 89 percent upfront, according to broker Phoenix Partners Group. That’s in addition to 5 percent a year, meaning it would cost $8.9 million initially and $500,000 annually to protect $10 million of debt.

To contact the reporters on this story: Mike Ramsey in Southfield, Michigan, at mramsey6@bloomberg.net; Caroline Salas in New York at csalas1@bloomberg.net

Last Updated: May 28, 2009 18:27 EDT