American Axle & Manufacturing Holdings Inc. (AXL) said Tuesday it reached a deal to receive as much as $210 million in funding from General Motors Co. (GM) as the parts maker works to avoid bankruptcy.

American Axle said it has an "agreement in principle" for a $110 million payment from GM to cover costs and contracts associated with its June bankruptcy. GM has also agreed to provide a second-lien term loan of as much as $100 million through Sept. 20, 2013, according to a federal filing.

The entire deal hinges on American Axle successfully renegotiating its loan terms with its creditors. The company has an Aug. 31 deadline, after its lenders granted it a second waiver extension on its revolving credit facility.

Shares of the Detroit-based axle maker more than doubled to their highest level in the past 10 months. The stock was trading at $5.36, up $2.75, or 105%.

GM's potential liquidity shot is easing investor fears that American Axle would follow Lear Corp. (LEAR), Visteon Corp. (VSTN) and Metaldyne Corp. into seeking Chapter 11. American Axle has endured drastic demand cutbacks as GM, its largest customer, reduced output amid the U.S. recession.

American Axle's announcement also comes on the same day GM is expected to reveal plans to boost production in response to the "Cash for Clunkers" program that has sparked purchases. The program gives consumers as much as $4,500 to trade-in an older vehicles for more fuel-efficient models.

This is the first time GM has provided American Axle with direct aid since an investor group, led by Chief Executive Officer Dick Dauch, bought GM's aging axle plants in 1994 to form the company. American Axles relies on GM for about 75% of its revenue and supplies the auto maker with axles to build pickup trucks and sport-utility vehicles.

A production disruption due to a bankruptcy at American Axle would shut GM assembly plants within 24 hours.

American Axle also said the latest waiver extension requires the company to maintain a daily minimum liquidity of $75 million. The second waiver can be terminated if American Axle fails to meet the minimum liquidity test for four consecutive business days, the company said in a filing.

The borrowing capacity under the revolver stands at $476.9 million through April 2010 and $369.4 million through December 2011, according to Standard & Poor's LCD unit.

The company initially amended the revolver in November, extending the maturity of a portion of the facility to December 2011 from April 2010.

Lenders to American Axle, led by JPMorgan Chase and Bank Of America Merrill Lynch, include Wachovia, BNP Paribas, KeyBank, SunTrust, Bank of China, HSBC, Commerzbank, U.S. Bank, Comerica Bank, National City Bank, Bank of Tokyo-Mitsubishi, Bank of Nova Scotia and Bank of New York Mellon.

Justin Perras, a spokesman for JPMorgan, declined to comment. Bank Of America Merrill Lynch wasn't immediately able to comment.

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 haven't traded yet Tuesday, the person said.

Meanwhile, the cost of insuring this debt against a default was quoted at about 29 points upfront, according to Phoenix Partners Group. That means it costs investors about $2.9 million upfront plus a $500,000 annual fee to insure $10 million of the bonds for five years. Although it still indicates a severe level of distress, that's significantly cheaper than $3.83 million upfront last week and suggests that investors' confidence in the company's is returning.

But Dwayne Moyers, portfolio manager at SMH Capital Advisors, is still cautious on the firm's prospects. While it has given itself some breathing room, the company still faces an uphill struggle to turn itself around, he said.

"It isn't out of the woods by any stretch of the imagination. It has to get its top line growing to really be able to rebuild its balance sheet," Moyers said. "In a cyclical business that hasn't yet turned, it going to be hard to grow out of that balance sheet."

Separately, American Axle said its sales will double to $3 billion by 2013 from a range of $1.4 billion to $1.5 billion this year. The expectation is based on a new vehicle selling rate of 14 million in 2013 in the U.S., compared with between 9.5 million and 10 million this year.

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