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General Motors surprised auto industry observers by reaching an 11th-hour deal with a group of bondholders who own $27 billion worth of the company’s debt, but press reports say the development won’t stave off bankruptcy.

Bloomberg reports, “General Motors Corp., the world’s largest automaker until its 77-year reign ended in 2008, plans to file for bankruptcy protection on June 1 and sell most of its assets to a new company, people familiar with the matter said. GM’s path will be smoothed by an accord today giving some of its biggest bondholders an equity stake in the reorganized automaker.” If bondholders accept the plan, it will essentially turn Monday’s bankruptcy filing into a pre-packaged bankruptcy – rather than negotiating new terms with its creditors in court, the company will be able to present the court with a proposal creditors have already approved.

The bondholder agreement is not a done deal. The New York Times explains, “Early Thursday, G.M. proposed a deal in which bondholders would receive up to a 25 percent stake – a bigger share than G.M. offered the autoworkers union – if they do not oppose its bankruptcy reorganization, and then said that a group representing many of the largest bondholders had accepted the offer.” But the group, said to represent about 20 percent of GM’s bondholders, cannot approve the offer alone. “In a regulatory filing, G.M. set Saturday afternoon as the deadline for other bondholders to support the plan.”

Under the planned bankruptcy, the Detroit Free Press reports, “the Detroit automaker will try to restructure itself in Chapter 11 with more government financing…The new GM would have far less debt and be primarily owned by the U.S. government, the UAW’s health care trust and current GM bondholders.” The company would be split in two, with one company holding assets that are considered viable and the other holding assets not considered viable. The “good GM” would then emerge from bankruptcy, free of the liabilities that had dragged down the company, while the “bad GM” would be liquidated by the courts. The U.S. government would hold “an initial 72.5% stake” in the “good GM.”.

The company, Forbes reports, “could be under court protection for three months and absent from public trading for as much as a year and a half.”

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