Thursday, February 5, 2009

Lawyers, Bankers Getting Paid To Work on Unsolvable Problem

The latest news from Detroit is that the U.S. Government has hired Cadwalader as bankruptcy counsel to the Distressed-3 sans Ford. Confirming that the government is known to throw away money first and ask questions later, Cadwalader is supposed to work with Chicago-based Sonnenschein to evaluate restructuring scenarios, including possible bankruptcy. Rothschild, which is the group's financial advisor, has been hard at work cranking away on 13 week cash flow schedules and DIP preparation already.

According to Bruce Clark from Moody's, the Obama administration "certainly needs sound advice on the complicated area of bankruptcy and implications for the economy." Cause heaven forbid they are bailed out first only to realize subsequently that the industry is completely unviable at sub 10 million SAARs. Too bad this is exactly what happened - according to Bloomberg:

When the government loaned the $17.4 billion in December, it didn’t work out an inter-creditor agreement that would determine its rights relative to past lenders. Cadwalader is working on such an agreement, as well as on related labor and environmental matters, the people said.

Cadwalader is also advising the government on how it might become a so-called “debtor-in-possession” or DIP lender, the people said. DIP loans fund a company’s operations as it reorganizes in bankruptcy. DIP lenders get repaid before pre-bankruptcy lenders and creditors.
The D-2 owe the U.S. government a viability progress report by February 14, and on March 31 the government has the option of putting them in bankruptcy. It will be a shame if the $20 billion of taxpayer money the government has spent so far in another crescendo of rash decisions is all for nothing.
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