By The Associated Press
The Associated Press
Sunday, March 22, 2009; 8:03 PM

-- Bondholders of General Motors Corp. warned the U.S. government on Sunday that the struggling automaker will likely be forced to file for bankruptcy if the debt restructuring proposal they have suggested _ or one like it _ is not accepted.

In a letter to the Treasury and members of President Obama's auto task force, financial advisers to GM's bondholders said the current debt swap plan on the table won't draw enough support from lenders.

"The result of such a failed exchange would likely be a bankruptcy that would have dire consequences for the company, the tens of thousands of hard-working Americans that GM employs and the economy as a whole," the advisers from investment firm Houlihan Lokey wrote.

GM is required to reduce its $28 billion in unsecured debt by two-thirds under terms set by the Bush administration in December on the company's $13.4 billion bailout loan. The Detroit automaker is nearing a March 31 deadline to get concessions from both union workers and debtholders as it races to complete restructuring plans required under the terms of its government loans.

GM has offered bondholders some equity in exchange for the debt. But bondholders have been reluctant to accept concessions that would leave them with only a small portion of the face value of their bonds.

"GM bondholders are not a collection of 'Wall Street banks,'" the advisers wrote. "Many of these bonds are owned by average citizens, who purchased them to support their own retirement and college expenses and other critical needs."

However, the group runs the risk of losing everything in a bankruptcy proceeding, and has discussed whether the government would guarantee new bonds that GM would issue as part of its restructuring.

The group's advisers said they believe the framework bondholders presented to the task force on March 5 would receive a high level of support from investors necessary to restructure GM out of court. Further details of that proposal weren't disclosed.

In Sunday's letter to Treasury Secretary Timothy Geithner and the task force, the advisers the the five-year restructuring plan presented by company on Feb. 17 moves GM in the right direction. However, the plan puts too much faith in the economy turning around quickly and annual car and truck sales ratcheting up to previous levels, the letter said.

"GM bondholders have been asked to make deeper cuts than other stakeholders: namely, to reduce two-thirds of our instruments' principal and trade it for speculative securities that may, if the currently planned cost reductions and sales projections prove inaccurate, end up having little or no value," they said. "All other parties involved in the restructuring process will walk away with far more."

The advisers said bondholders are "disappointed" that neither GM nor the auto task force has responded to their proposal.

GM spokeswoman Renee Rashid-Merem said Sunday the company will not comment specifically on the letter other than to say it continues to work toward an agreement with the bondholders.

She also defended GM's turnaround plan as comprehensive proposal that will ensure the company's long-term viability.

"It's a dynamic plan," she said.