Bail out
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As it stands, the government’s claims have been subordinated behind other creditors.

As a result the government is contemplating  buying its way to the top of the line.

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February 9, 2009, 9:44 am
Gov’t Explores Move To Push GM Into Bankruptcy
Posted by Bob O'Brien

EFFORT AIMS TO MOVE TAXPAYERS TO TOP OF CREDITOR LINE

General Motors (GM) isn’t necessarily out of the woods in terms of a bankruptcy risk, though a move to push the ailing automaker into Chapter 11 protection wouldn’t likely alter the company’s recovery, or result in a dramatic change in operations.

Media reports said the federal government, which has lent the auto maker and rival Chrysler a combined $17.4 billion in relief, wanted to move to the head of the line of creditors that would be reimbursed for loan payments. As it stands, the government’s claims have been subordinated behind other creditors, including bankers JPMorgan (JPM) and Goldman Sachs (GS) - a pecking order the feds find inhospitable, given the political exposure viewed in bailing out private enterprise.

By pushing the auto maker into bankruptcy, the government hopes to alter the payment plan in a manner that would make its repayment plans superior to that of private-enterprise lenders, and give taxpayers the first bite of the recovery apple. The deal would allow the government to offer GM a debtor-in-possession loan, thus elevating its claims on GM income. In short, the government would be buying its way to the top of the line.

Meanwhile, GM has been considering a plan to buy back some of the plants of Delphia Automotive, the parts supplier that has been operating under bankruptcy protection for three years.


http://blogs.barrons.com/stockstowatchtoday/2009/02/09/govt-explores-move-to-push-gm-into-bankruptcy/

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Bankruptcy or Bust

Almost on cue, with an end-March restructuring plan deadline looming, reports of General Motors’ impending demise are bubbling up from the slush of a winter’s economic meltdown. The Wall Street Journal reports GM is looking to take back big chunks of bankrupt parts supplier Delphi,which it spun off a decade ago. The move would make GM bigger just when it is busy right-sizing. Is it taking aim at gaining that exalted Too Big To Fail status that has saved so many banks?

Meanwhile, Bloomberg has an analytical piece suggesting the U.S. government will insist on bankruptcy at GM and Chrysler,engineered to put taxpayer money above other claims. Whatever the case,it is clear the fate of the automakers is again the subject of much debate in the Oval Office. Turnaround plans from GM and privately held Chrysler are expected before the end of the month, and the White House says no decisions are expected before then.

The Obama administration confirmed our reporting that it had hired two law firms to assist Treasury Department officials on auto restructuring matters,lending some credibility to the bankruptcy argument. Lawyers tend to hover and hop around with vulture-like efficiency when talk of bankruptcy funding gathers momentum.

GM and Chrysler have until March 31 to demonstrate to the government that they can be commercially viable. Both told policymakers in December that they faced possible near-term collapse without aid. While the White House talks with lawyers, there is still no sign of a much-talked-about car “czar” to provide a little incentive for revolution.

http://blogs.reuters.com/reuters-dealzone/2009/02/09/bankruptcy-or-bust/

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(By Salman - iStockAnalyst Writer)


Talks of a government forced bankruptcy of US automakers General Motors (NYSE: GM) and Chrysler has been gaining ground, as the deadline for end-March restructuring plan approaches.

Both GM and Chrysler were offered $17.4 billion in government loans in December to avert a collapse. If the automakers fail to produce a restructuring plan by March 31, the automakers will be required to pay back the government loans.

Experts point out that such a move would ensure repayment of $17.4 billion in federal bailout loans as it would put taxpayer's money above other creditors. According to the present loan agreement, Citigroup Inc. (NYSE: C), JP Morgan Chase & Co. (NYSE: JPM), Goldman Sachs Group Inc. (NYSE: GS) are in the first in line for loan repayment

General Motors Corp. and Chrysler LLC may have to be forced into bankruptcy by the U.S. government to assure repayment of $17.4 billion in federal bailout loans, a course of action the automakers claim would destroy them.

According to the reports, the government has hired a law firm, Cadwalader, Wickersham & Taft LLP, to help secure priority line through mutual agreements. In case, the federal government failed to alter their position, then it may force the automakers into bankruptcy as a condition for additional bailout aid. Under such a deal, the government would finance the bankruptcy with a “debtor in possession” or DIP loan, which would elevate its lender status. According to industry experts, chances of a forced bankruptcy is quite high as it seems the only way out to assure preferred repayment of taxpayer's money.

So far, GM and Chrysler have resisted calls to restructure under bankruptcy protection, saying a Chapter 11 restructuring would have a negative impact on its business and lead to liquidation.

General Motors is planning to reduce $27.5 billion of unsecured debt to about $9.2 billion by swapping the securities for equity. Both GM and Chrysler are working to reduce labor costs, eliminate dealers and curtail debt.

GM and Chrysler are working toward a Feb. 17 deadline to show progress on a plan put in place as part of the U.S. loans received in December from the Troubled Asset Relief Program. They must reduce labor costs and show how they will repay the money by next month.

Both the automakers are supposed to submit viability plan to Treasury Department by February 17th show the federal government how they intend to become viable and justify up their government loans.

Meanwhile, according to media reports, GM is in talks with Delphi Corp. to take back large portions of bankrupt parts supplier spun off by the automaker a decade move. The latest move is being seen as part of a strategy to qualify for additional bailout loans.

In January, General Motors (NYSE: GM) on Monday said that its sales fell 48.9% to 128,198 vehicles in January from 250,926 in January 2008. Chrysler's sales decreased 55% to 62,157 units, compared to 137,392 units in January 2008.

Disclosure: Author does not own any of the stocks discussed here.


http://www.istockanalyst.com/article/viewarticle/articleid/3022089

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