General Motors Corp. bondholders reject the auto maker’s offer of 10% in the company in exchange for the retirement of $27 billion in debt.

The offer, which expired at 11:59 p.m. Tuesday, required 90% of bondholders to accept the proposal in order for it to succeed.

The bondholder rejection virtually assures GM will file for bankruptcy on, or prior to, a government-imposed June 1 deadline to restructure its operations, says Van Conway, senior managing partner of Conway MacKenzie, an international financial and management consultancy in Birmingham, MI.

Conway says bankruptcy will prove a risky proposition for GM, which may see buyers opt for vehicles from competitive auto makers.

“I think it’s a huge unknown if customers are going to buy (GM) products,” Conway tells Ward’s. “Other OEMs have similar vehicles. If I’m a middle American, I don’t understand bankruptcy, so why not buy (a Ford) F-150 or (Toyota) Tundra?”

The auto maker in a statement says the “principal amount of notes tendered was substantially less than the amount required by GM to satisfy the debt-reduction requirement under its loan agreements with the U.S. Dept. of the Treasury.”

The shortfall also fails to meet GM’s own debt-reduction objectives, outlined in its viability plan.

The failed debt exchange follows Tuesday’s announcement United Auto Workers union local leadership voted unanimously to recommend ratification of a new settlement agreement modifying the 2007 UAW-GM National Agreement, as well as changes to the UAW-managed trust, or Voluntary Employee Beneficiary Assn.

UAW rank-and-file members are to vote on the agreement beginning today, with results expected to be tabulated and reported by late Friday, a union source tells Ward’s.

The UAW concessions were seen as a positive step in GM’s attempt to avoid filing Chapter 11 bankruptcy.

Under terms of the new UAW agreement, the union retiree health-care trust reportedly will receive a 17.5% stake in a restructured GM, a much smaller share than the auto maker previously offered.

Last month, GM said it would give the VEBA a 39% stake in return for paying half of the $20 billion due to the fund.

That plan also called for the Treasury Dept., which has provided GM with $19.4 billion in taxpayer loans since the beginning of the year, to receive a 50% stake in the new GM.

Conway says he was hoping the UAW’s smaller share would result in a sweetened deal for bondholders.

“The UAW sounds like they’ve come down, and why would the government want to own more?” he says. “If they’re trying to avoid a bankruptcy I read that as freeing up available equity to increase the stake to bondholders. If you increase (their stake), they’re getting more than the UAW.”

Meanwhile, some 9,000 GM employees represented by the Canadian Auto Workers union ratify a new cost-cutting agreement that increases prescription co-pays, eliminates a scheduled $3,500 payment due in lieu of sacrificed vacation time and authorizes expanded use of part-time workers under specified conditions.

The deal also creates the Health-Care Trust that will administer retiree health-care benefits.

“This deal has provided us the path on which we can move forward, to ensure not only our members but all workers impacted by the auto industry feel a bit more secure at a time of tremendous economic uncertainty,” CAW Local 222 President and CAW-GM Master Bargaining Committee Chairperson Chris Buckley says in a statement.

In addition, Reuters reports GM is in talks with former parts maker Delphi Corp. to purchase five plants from the bankrupt supplier.

Delphi spokesman Lindsey Williams confirms GM is “interested in purchasing certain Delphi sites. We have not, however, categorically confirmed the specific locations.”

Willliams says Delphi will outline the status of its operations, including any plant-related transactions, in a bankruptcy court filing.

bpope@wardsauto.com