American Axle & Manufacturing Holdings Inc. (AXL) will receive a $110 million payment and loan from General Motors Co. as the parts maker works to avoid bankruptcy.

American Axle said it reached an agreement in principal for GM to pay $110 million to cover the contracts assumed or terminated through its bankruptcy in June. The company also said GM will provide a second-lien term loan of as much as $100 million. American Axle will have the right to make multiple draws from the loan through Sept. 20, 2013.

The new financial arrangement provides American Axle with some much needed liquidity and support from GM which account for more than 70% of its revenues.

The entire deal hinges on American Axle successfully renegotiating its loan terms with its creditors. The company has an Aug. 31 deadline.

American Axle, based in Detroit, has endured drastic demand cutbacks as GM and other auto makers reduced production for almost a year amid the U.S. economic recession. The reduction caused many parts makers, such as Visteon Corp. (VSTN), to seek Chapter 11.

Shares of American Axle jumped 77% to $4.66 in earlier trading Tuesday as investors bet that bankruptcy is no longer a threat.

American Axle's 5.25% bonds due 2014 also leapt 15 points on the news to trade at 70 cents on the dollar, according to one trader. The 7.875% bonds have not traded yet Tuesday, the trader said.

-By Jeff Bennett; Dow Jones Newswires; jeff.bennett@dowjones.com; 248-204-5542

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