Bailout Watch 522: Feds Ready to "Facilitate" GM C11

by Robert Farago

Published: May 8th, 2009

bailout watch 522 feds ready to facilitate gm c11

The US Treasury Secretary had a little chin wag with Reuters re: GM. It seem that Mr. Geithner is as pleased as punch with his minions’ work with Chrysler’s bankruptcy. So pleased, in fact, he sees ChryCo’s dissolution solution as a template for GM’s C11. You know “if”. “There is a range of ways to achieve [GM’s restructuring]. You saw what we did in the Chrysler context as one way to do it and if that proves necessary in the GM context, we’ll do that.” And then the aforementioned “if”. “But we’re not at the point where we need to make that judgment yet.” Sure. They’ve got 28 days to convince GM’s bondholders—a motley crew of “investors” looking at differing payout and maturity dates—to take a flyer on a company that hasn’t made a profit for . . . sorry, debt for equity swap. And here’s some fuel for those who see the government’s role in the US auto industry as reprehensible.

Peter Kaufman, restructuring expert and president of New York investment bank Gordian Group LLC, said GM would most likely follow Chrysler into bankruptcy.

“This is not playing by the rules, but the government has shown it’s not terribly interested in playing by the rules,” Kaufman said. “I think this will embolden the government to do what they’re already contemplating for GM.”

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Pch101 on May 09, 2009
But, who is lining up to buy GM? The hope is Renault-Nissan. This group are twits ’cause they knew going into this that the 2 billion deal was on the table. They had more leverage outside of Ch11 then in it… They did not do their home work and did not plan for the inevitable. I wouldn't quite describe it that way. I've personally been involved in these sorts of cases, in a position similar to that of the bondholders in that my side had the weaker case of the two parties. When you're the weaker party, you know that you probably can't win. You're not trying to win through the verdict, you're trying to buy time and stall, and use the ability to stall in order to get the other side to give you a better deal outside of the court system. The verdict becomes irrelevant, because you work your deal before the court does it for you. When you were in the bondholder's position, your ability to negotiate will basically be determined by the judge's decisions. If the decisions give you the chance to stall, you will be happy. If his decisions speed things up, you won't be. The bondholders had to try. They filed some papers, threw what they could up against the wall and hoped for the best. Unless they were morons, they knew that their odds were bad, but sometimes, you just have to use what you've got. The emotion from some of the posters is astonishing to me. This whole thing is a game. Not every team goes onto the gridiron equally prepared to win. The bondholder case was just not very good, and although they had some defenses, they weren't that great. In situations like this, you're depending upon the capriciousness of the judge to potentially toss you a lifeline. Judges can be quite fickle and temperamental, and sometimes, you can just get lucky (or unlucky, depending upon whom he gave the advantage.) In this case, no such luck for the bondholders.

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Jolo on May 09, 2009

97escort says: A GM bankruptcy is more complicated than Chrysler’s. Chrysler does not have overseas operations of the size that GM does. GM will do what Delphi did, only file chapter 11 for the NA operations. Delphi is the test case, and Chrysler as well, that will get GM through this. Government supplying the funding to go through it and Chrysler is showing how it's done. Economies of scale be damned.

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Lw on May 09, 2009

jolo: Delphi is a great model to work from.... They went into bankruptcy cleaned up quick and emerged a few months later stronger and better than ever... You mean they didn't? They still are? Seriously?

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Guyincognito on May 09, 2009

I'll take this opportunity to totally reverse myself. GM is most certainly going to be put into CH11. I still find it hard to imagine that Obama will give GM to Renault/Nissan.

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