Editorial: General Motors Death Watch 213: Blueprint for a Taxpayer-Funded GM C11

Robert Farago
by Robert Farago
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.

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  • Joeaverage Joeaverage on Nov 14, 2008

    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!

  • Zerocred So many great drives:Dalton Hwy from Fairbanks to the Arctic Circle.Alaska Marine Highway from Bellingham WA to Skagway AK. it was a multi-day ferry ride so I didn’t actually drive it, but I did take my truck.Icefields Parkway from Jasper AB to Lake Louise AB, CA.I-70 and Hwy 50 from Denver to Sacramento.Hwy 395 on the east side of the Sierras.
  • Aidian Holder I'm not interested in buying anything from a company that deliberately targets all their production in crappy union-busting states. Ford decided to build their EV manufaturing in Tennessee. The company built it there because of an anti-union legal environment. I won't buy another Ford because of that. I've owned four Fords to date -- three of them pickups. I'm shopping for a new one. It won't be a Ford Lightning. If you care about your fellow workers, you won't buy one either.
  • Denis Jeep have other cars?!?
  • Darren Mertz In 2000, after reading the glowing reviews from c/d in 1998, I decided that was the car for me (yep, it took me 2 years to make up my mind). I found a 1999 with 24k on the clock at a local Volvo dealership. I think the salesman was more impressed with it than I was. It was everything I had hoped for. Comfortable, stylish, roomy, refined, efficient, flexible, ... I can't think of more superlatives right now but there are likely more. I had that car until just last year at this time. A red light runner t-boned me and my partner who was in the passenger seat. The cops estimate the other driver hit us at about 50 mph - on a city street. My partner wasn't visibly injured (when the seat air bag went off it shoved him out of the way of the intruding car) but his hip was rather tweaked. My car, though, was gone. I cried like a baby when they towed it away. I ruminated for months trying to decide how to replace it. Luckily, we had my 1998 SAAB 9000 as a spare car to use. I decided early on that there would be no new car considered. I loathe touch screens. I'm also not a fan of climate control. Months went by. I decided to keep looking for another B5 Passat. As the author wrote, the B5.5 just looked 'over done'. October this past year I found my Cinderella slipper - an early 2001. Same silver color. Same black leather interior. Same 1.8T engine. Same 5 speed manual transmission. I was happier than a pig in sh!t. But a little sad also. I had replaced my baby. But life goes on. I drive it every day to work which takes me over some rather twisty freeway ramps. I love the light snarel as I charge up some steep hills on my way home. So, I'm a dyed-in-the-wool Passat guy.
  • Paul Mezhir As awful as the styling was on these cars, they were beautifully assembled and extremely well finished for the day. The doors closed solidly, the ride was extremely quiet and the absence of squeaks and rattles was commendable. As for styling? Everything's beautiful in it's own way.....except for the VI coupe....it's proportions were just odd: the passenger compartment and wheelbase seemed to be way too short, especially compared to the VI sedan. Even the short-lived Town Coupe had much better proportions. None of the fox-body Lincolns could compare to the beautiful proportions of the Mark V.....it was the epitome of long, low, sleek and elegant. The proportions were just about perfect from every angle.