Bailout Watch 152: Department of Energy Releases $25b Bailout Regs
“DOE would like to invite you [ED: who shall remain nameless] to participate in a conference call for industry stakeholders on the new Interim Final Rule for the Advanced Technology Vehicles Manufacturing Loan Program issued this evening. The program was authorized by Section 136 in the Energy Independence and Security Act of 2007. The FY09 Continuing Resolution authorized up to $25 billion in direct loans. The press release is attached. The Interim Final Rule is posted at http://www.atvmloan.energy.gov/.” Interim Final Rule? Yeah, that sounds like the feds alright. Anyway, while I scan the pdf myself, I once again invite TTAC’s Best and Brightest to cast their collective beady eye on this doc, which was allegedly going to take over a year to produce. I guess it pays to have high friends in low places. Right. Let’s get stuck in…
Here’s a good bit about the widely-reported (ish) rule regarding a borrower’s financial health, from page 14: “In today’s interim final rule, the Department interprets the term ‘financially viable’ to mean that an applicant must demonstrate a reasonable prospect that the Applicant will be able to make payments of principle and interest on the loan as and when payments come due under the terms of the loan document, and that the applicant has a net present value which is positive, taking all costs, existing and future, into account.” There’s more along those lines– the recipients must be viable without federal funding— but WTF? If the money is restricted to automakers who are viable, Detroit doesn’t qualify. Period.
At the moment, the money is still available only for the direct engineering and retooling costs to create vehicles that are 25 percent more fuel-efficient than vehicles “with substantially similar attributes.” [page 19, examples on page 26] And you know that dual-fuel CAFE credit nonsense that boosts a vehicle’s mileage figures without boosting its actual mileage? Forgeddaboutit. [page 20]
In keeping with automotive product cycles and federal largesse, the loan principal may be deferred entirely for five years. Interest payments must proceed apace. [page 29] And the DOE has first lien on all property secured with the loan, and all assets used to secure the loan. In other words, if any of the borrowers go belly-up, the DOE is first in line for the aforementioned assets (sorry my head’s starting to spin). [page 30]
The loans can only be used for 80 percent of the cost of a new vehicle program. [page 32] And the D.O.E. ain’t gonna just hand over the readies; they’re going to evaluate the viability of the finished product (nice to know our regulators are now in the car biz). [page 33]
I think those are the “highlights.” My takeaway is simple enough. Detroit was right: this is NOT a bailout. Unless Motown’s fixers can fix the wording in this loan program to subvert the legislator’s original intentions, the $25b loans will do sweet F.A. to rescue American automakers from the right-here-right-now cash conflagration engulfing them. What’s more, I can’t find any language restricting these loans to 20-years-old or older factories. So, theoretically at least, this program will be stretched a lot thinner than we may have first believed.
Personally, this leaves me wondering: can a person be allergic to legislative documents?
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Yes, RF, a person can be allergic to legislative documents, but if an attorney is diagnosed with such an ailment, unemployment is in the not-too-distant future. It's a remarkably short period for the feds to get an interim rule on the books; I've never seen anything quite like it. If I can't sleep tonight, maybe I'll dissect the rule and do a little write-up or something. Nothing like federal regs to cure insomnia. In the meantime, all I can say is that the existing secured creditors must be pissed by getting pushed back in line. I wonder if some creditors will be tempted to force Ch. 11 before the fed money starts gushing into Detroit's coffers, just to be sure there's some meat left on the carcass.
So far, I kinda like it. It doesn't seem like the blatant BS giveaway we thought it would be. It's still completely unnecessary, sure, but at least it's not quite an outright gift.