Editorial: General Motors Death Watch 213: Blueprint for a Taxpayer-Funded GM C11
[Once again, our anonymous bankruptcy lawyer has put his skills to use on our behalf. His C11 plan’s a bit technical, and it sounds crazy, but it just might work.] The process kicks off with a GM Chapter 11 filing. The U.S. Treasury then gives GM a secured debtor-in possession line of credit for $40b. The line of credit is secured by a first security interest on all GM assets, being junior only to the existing secured line of credit. The fed’s $10b of the line of credit is used to support essential suppliers through loans and pre-payments, perhaps tracking the existing GM model for financing its suppliers.
On the first day of the case, the bankruptcy court gives interim approval to $5b of the total credit line and schedules a hearing ten days later to approve the balance of the $40b loan facility. It’s likely that GM would prepay essential suppliers before filing Chapter 11, and could get court approval to make pre-payments for post-chapter 11 shipments.
A GM chapter 11 case will be expedited. The chief judge assigns multiple judges to handle different aspects of the case, recognizing that speed is essential to a successful reorganization. The case is filed on a Friday evening; the initial financing approvals is in place before the markets open on Monday.
The reorganization plan itself is fairly straightforward:
-Taxpayers have a $40b first lien on all assets. If GM’s debtor-in-possession financing cannot be refinanced, then the taxpayers can negotiate the terms upon which they will extend their loan to GM. Taxpayers will get warrants to buy New Equity to reward them for the risk of financing GM in Chapter 11.
-$40b of bondholders get their pro rata share of any new unsecured debt issued by GM ( the New Debt) and their pro rata share of the new common shares (the New Equity) issued by New GM. No interest will be paid on the New Debt until taxpayers are paid in full.
-Trade payables of $39b, the $25b owed to the UAW, and any other unsecured claims, also get their pro rata share of the New Debt and New Equity.
-Old equity gets nothing
-New management gets a bonus incentive pool consisting of five percent of the new equity
-Old management gets their pick of a gold watch or a HUMMER
And there you have it. Although the size, scope and possible failure of a GM C11 is daunting to management, unions, suppliers and political representatives, a filing is the only way that taxpayer money can be protected– short of witholding federal funds entirely.
More by Robert Farago
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We keep hearing about how the money will go to help the big three retool for more economical cars.... Don't they already sell more economical cars in other markets? Europe, South America, Africa? No way do I want to pay for them to retool when they've already got products to sell - they just need to get them federalized. They've ALWAYS had more economical vehicles to sell but didn't want to seel them here and compete with the other stuff they had here. Let them build those cars in Mexico and Poland and wherever else they have cheap labor and sell cars here. The UAW is going to sqeal and cry and throw a tantrum but screw 'em - they have been part of the problem, not part of the solution.
Should old management really get their pick of a gold watch or a HUMMER? They should have to GIVE a HUMMER (not the car!) to the American automotive enthusiast!