May 27 (Bloomberg) -- General Motors Corp. failed to get 90 percent of its bondholders to swap their claims for stock, pushing the largest U.S. automaker closer to bankruptcy.

The principal amount of notes tendered was “substantially less than the amount required by GM” and, as a result, “the exchange offers will not be consummated,” the company said today in a statement. GM faces a government-imposed June 1 deadline to restructure or file for bankruptcy.

GM, propped up by $19.4 billion in emergency U.S. loans, will file for bankruptcy protection after failing to get 90 percent of bondholders to swap their debt, Chief Executive Officer Fritz Henderson has said. The exchange offer was opposed by both institutional and individual investors, who said they’ve been treated worse than a union retiree-medical fund.

“It’s no surprise at all that a deal that was as unattractive as this one would be soundly rejected,” said Pete Hastings, a fixed-income analyst at Morgan Keegan & Co. in Memphis, Tennessee. Bankruptcy is “imminent,” said Hastings, who urged his clients to refuse the exchange offer.

The decision on a bankruptcy is “up to the GM board to decide and that meeting is later in the week,” said Julie Gibson, a company spokeswoman. She declined to be more specific on the timing of the meeting.

Bond Price Decline

Bondholders were offered 225 shares in a newly created entity for each $1,000 in principal before a 1-for-100 reverse split of the stock. They were offered a 10 percent stake in the reorganized company for their $27 billion of debt.

GM’s $3 billion of 8.375 percent bonds maturing in 2033 fell 1.5 cents to 6.3 cents on the dollar as of 9:13 a.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The debt yields 129 percent and has fallen from 21 cents at the start of the year and 70 cents 12 months ago.

The automaker also said it canceled meetings with holders of non-dollar-denominated notes that were scheduled to take place today.

“The offer probably cost them more to print out than the offer is worth,” Gary Thomas, a retired auto mechanic and GM bondholder, said in a telephone interview from Kingston, Tennessee, before the results were announced.

Thomas, 56, said he has “hundreds of thousands of dollars” of his savings in the automaker’s bonds and has joined a group of individual creditors called GM Bondholders Unite. The group is trying to gather investors and hire legal representation to get “fair and equitable treatment” in a bankruptcy, according to its Web site.

GM shares fell 20 cents, or 13.9 percent, to $1.24 as of 9:47 a.m. in New York Stock Exchange composite trading.

Amended Offer

After GM announced the exchange offer on April 27, the ad hoc committee of institutional bondholders said in a statement that the swap was “neither reasonable nor adequate” and showed “political favoritism of one creditor over another” because the United Auto Workers retiree health-care fund was originally offered about $10 billion in cash and as much as a 39 percent equity stake for $20 billion in claims.

GM’s offer to the UAW health-care fund was changed to 17.5 percent of the new stock, $6.5 billion in preferred shares that pay a 9 percent annual dividend, as well as a $2.5 billion note that will be repaid in installments until 2017, according to a union document obtained by Bloomberg.

The ad hoc bondholder committee, whose members have included Capital Research Management & Co. of Los Angeles and San Mateo, California-based Franklin Resources Inc., presented a counteroffer to President Barack Obama’s auto task force in April that sought a 58 percent equity stake in exchange for their claims. Their offer wasn’t adopted.

To contact the reporter on this story: Caroline Salas in New York at csalas1@bloomberg.net

Last Updated: May 27, 2009 09:52 EDT