Tuesday, April 14, 2009

What The GM Bankruptcy Would Look Like

Interesting post on GMInsideNews.com (hat tip PIGPEN)

"Recently there have been many speculation pieces regarding what may or may not happen to General Motors if and when the company has to file for Chapter 11 bankruptcy protection. At the current time, there is no certainty of a bankruptcy filing by GM. The new offer to the unsecured bondholders has not been formally presented to them yet, that is slated to happen this Wednesday when the Auto Task Force and GM officials meet with representatives of the bondholders. That outcome of this most recent bondholder offer is likely going to be the ominous sign of the future of General Motors. If accepted, an out-of-court restructuring may just be possible yet. If the bondholders refuse (again), a Chapter 11 filing will be following shortly. GMI sources have informed us of what the current bankruptcy plans entail after the filing has been made. We feel like it is imperative to clarify what the current plans are.

Reports are correct that, if bankruptcy is filed, General Motors will seek a “363” deal in court. Such a deal has the company split into two portions; one comprised of the “good” assets (let’s call it GoodGM for ease) and one filled with the “bad” assets (call it BadGM). During the proceedings, BadGM would be given over to the holders of GM’s debt to be liquidated to raise money to pay off former GM’s debt. Note that GM has approximately $29 Billion in debt; $7 Billion of which is secured by Saturn assets (including Spring Hill, TN plant). The government’s $13.4 Billion loan to GM is also considered secured debt, with a vast amount of assets up as collateral.

GoodGM would reemerge fairly quickly from the bankruptcy process (if everything goes to plan). The U.S. government would release GM, GoodGM and BadGM of the $13.4 Billion in debt, but as a trade-off take a 100% ownership in GoodGM upon reemergence. Shortly after the new company emerges from bankruptcy, the U.S. government (currently the owner of GoodGM) would issue an initial public offering (IPO) on the new company and it would become a public company much like the current General Motors, though the current GM stock would be canceled in bankruptcy. Most of the money raised from the investment of the new company would likely go to the VEBA fund for the UAW.

A Look at GM's Debt

Unsecured debt: $29 Billion (this is the amount that is taking hold in tomorrow's bondholder meetings)

Debt to U.S. government (considered secured by assets): $13.4 Billion

Secured (non-government) debt: $7 Billion (this is all secured by Saturn and the Spring Hill, TN assembly plant)

UAW VEBA Obligations: $48 Billion (considered unsecured debt)

Total Debt: $97 Billion (including VEBA obligations)
Total Debt (without VEBA): $49 Billion

The above is a very general view of what the bankruptcy plan for General Motors is shaping up to look like. Some will argue against the plan, but GMI sent the above off to our sources for verification prior to publication and in the past they have been spot on. Tomorrow's bondholder meeting is likely to shed light on whether or not bankruptcy is the only answer. Stay tuned to GMI for the latest out of tomorrow's bondholder meetings, because we're certain our sources will have some information for us." Sphere: Related Content
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Anonymous said...

The phrase "at the current time" can also be expressed more succinctly as "now."

Anonymous said...

citi next please

Anonymous said...

Two questions:

1. Can the government even do this? Steal the cash-generating "good" assets from the bondholders and foist only the "bad", cash-burning assets onto the bondholders for liquidation? That can't be legal. As I understand it, the Bush administration didn't put the government's loan into any sort of senior position that might allow something like that.

2. Does question 1 revolve around the whole "equitable subordination" issue you've been raising?

Anonymous said...

can't imagine current secured non-gov bondholders will take kindly to having their secured assets stolen from them by the gov, no matter how reprehensible these creditors might be (JPM, GS, etc.).

Correct me if I'm wrong, but this can't end well, and will probably end up in court for months, if not years???

Anonymous said...

So the gubmint takes full ownership of the good GM and then sells shares to private investors and presumeably keeps $13.4B (loan payback) and gives the rest to the UAW up to $48B? Will there be anything left for good GM to operate with or is this just a liquidation for the benefit of the gubmint and the UAW?

dave.dolan said...

A section 363 sale is literally built to sell parts of a company that can still be considered a going concern. According to the law it can be a part of the company or nearly all of the company. So yes, it's perfectly legal.

Personally, I don't see how there can be such a thing as a bond holder-as-capital-investor any more in large companies since the bankruptcy code makes a mockery of the idea of debt seniority. Not only with a Sec. 363, but also the fact that the government can negotiate 'super senior' debt positions. What a joke.

Anonymous said...

A section 363 sale is literally built to sell parts of a company that can still be considered a going concern. According to the law it can be a part of the company or nearly all of the company. So yes, it's perfectly legal.


The debtor can't unilaterally do a 363 sale that favors some creditors over others. The bankruptcy court has to approve it, and the bankruptcy court's job is to look out for the estate, which usually means the unsecured creditors as a whole. Not just the government or the union or retirees.

DocG said...

The company should be nationalized and retooled to produce small, inexpensive, fuel-efficient autos and mass transit vehicles. All workers should be retained, but on a three day workweek basis. If the government moves boldly to produce a meaningful social safety net, including single payer health care, then pensions and health benefits would become redundant and could be dropped. http://amoleintheground.blogspot.com/

Anonymous said...

Americans won't buy small, inexpensive, fuel-efficient autos. And we can't build them. That would be a VERY. BAD. BUSINESS. PLAN. Nancy Pelosi's genius not withstanding.

Anonymous said...

Over The Line, Smokey!

There's no way the Obama will put GM into bankruptcy. His legacy would be Hoover-like soup lines throughout the midwest. They might have done this pre-Lehman, but I think the unforeseen consequences of that should have them spooked too much to attempt this, despite all the noise about supplier support funds and careful planning, etc. Come May 30th, they're going to praise GM's "dedication" and "cost-cutting" in this "difficult situation", laud their "new direction" and cut them a new check. It's the only safe thing. It's the wrong thing, but the guy will want to be President another 4 years and will figure he can fix everything then, using the whole ordeal as impetus to implement the type of safety nets he wants.

Anonymous said...

Is the $7.4B secured debt part of the $29B debt or not? It's stated both ways in the article.

One way or another, however, they phrase it, there's going to be a GM bankruptcy.



Anonymous said...

Will this cause a " Credit Event" with Default Swaps needed to paid out in lue of GM filing for Bankrupcy?

Anonymous said...

GoldmanSachs666 is a dis-info site put up by Goldman, to tell us all the obvious facts, that we already know, thereby distracting us from the real conspiracy of GS crashing the market in 08!
Here is how I see it.
1. GS shorts the ABX(subprime) in 07. Makes a Billion or 2. Sends a ripple in the markets.
2. GS men at the Exchanges raise margin requirements forcing massive liquidation in JULy 07, not to mention cornering the oil market.
3. GS men at the SEC raise margin in 08, lower regulation increasingly over entire tenure.
4. There man Hank Paulson took Lehman in the other room, executation style. That really got things rolling (downhill)
5. Then, GS influence at Mood'yS(warren buffet) slashed AIG rating forcing them to find Billlions overnigth,
6.Then Hank Pauslon shows up with his $700 Billion ransome note. After stock markets crash around the world for 10 days, congress gives the big five banks their money.
7. Jim Cramer, former partner of GS, after watching the market crash for 10 days, tells America to sell everything. If we see a rally this year, you know Cramer is in on it
8. Rubin was a trojan horse on Citi's Board, encouraging them to get long and heavy in realestate.
9. AIG and Citi were made fall guys from the beginning, "to big to fail" was the plot
10. It's possible that GS even inflitrated Freddie and Fannie. It's obvious IndyMAc was a front to push liars loans.

dave.dolan said...

Anonymous @ 2:58:

I don't know about hooverlike but I do think you're right. Obama cannot put them into bankruptcy if that means that he will be entrusting his political future to a judge. I still think this is slightly higher stakes chicken.

Taunter said...

I think the post is leaving out $17bn of deferred tax liabilities and is lumping together the VEBA and the pensions.

The pension is undercalculated (the plan asset growth rate assumption is 8.5%, which would be challenged in court) and should be structurally senior to both the bonds and the VEBA.

Finally - and crucially - the Good GM turnaround is going to entail abrogating over a thousand dealer contracts, nearly of which call for damages and some of which provide exclusive rights that GM will want to recapture. Going through bankruptcy breaks the contracts but the damage claims will be brought against the estate.

My rough numbers are here:

I think it's going to be a damn long slog through liquidation for "Bad GM," and it is very optimistic that the US government is going to emerge with all of the equity in Good GM, even if it is the only DIP financing source. If the LTV case is an precedent, the pension plan holders would come right back at Good GM.

Anonymous said...

Call me naive, but shouldn't the IPO proceeds pay off the taxpayers?

I guess we'll have to pay off the unions either way since we will have to pay the PBGC for GM's unfunded pension liabilities....

CNBC's poll had it right - the gov't never should have gotten involved (but for BHO's quid pro quo to the unions).

Anonymous said...

SO the bondholders, many of whom are small investors and seniors looking for income are given the bad GM......eg...."nothing"?

Does this seem fair to anyone reading this?

The UAW has decimated the auto industry, and we are worried about taking care of them???

We are in a "credit crunch".....
Imagine what chances ANY company will have to raise money through bond issues if bondholders can literally be ROBBED by the government!!

This is a slippery slope,,and Obama and his boys on the left had better consider such moves before they undermine the entire economy in the future.

This is socialism at its worst.
Im certainly not one of those right wing nut jobs,,,but a section 363..legal theft...is just plain wrong.

All creditore should be treated equally,,,and an HONEST BK judge will see that.

Anonymous said...

Good for the fakers Hedge funds.

I am at a loss to come up with any pity for the hedge fund folks, im just happy they received a serious flash all they care about is accumulation of others earned wealth if they go down I would be happy to loose my money but see them in the ground,
as they have caused all the problem with their quick idea to steal money from the real Americans.
all this greed in American investments.
Hedgers do not deserve any help at all they only deserve 6x4 grave site.