Moody’s Investors Service believes there is a 70% chance of bankruptcy at the ‘Detroit three’ automakers because of the difficulty of winning major concessions from creditors out of court.
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Though the Obama administration would prefer General Motors and Chrysler restructures outside bankruptcy, it is clearly putting bankruptcy forward as an option, the ratings agency said, according to Reuters.
“Given the lack of progress achieved and the additional progress that will be required in the revised plans, this threat will need to be seen as credible in order to compel adequate movement on the part of stakeholders,” Moody’s was quoted as saying in a note earlier this week.
GM has 1 June to complete a reorganisation plan that would include cutting unsecured debt by two-thirds and making half of its remaining payments into a union healthcare trust in the form of equity rather than cash, the report said, noting that the US government has warned the alternative would be bankruptcy.
Chrysler, meanwhile has only until 30 April to complete an alliance with Fiat.
Moody’s reportedly said Chrysler faces a more difficult burden in demonstrating its viability than GM and has the highest risk of filing for bankruptcy. It added that it saw Ford’s bankruptcy risk as moderately below 70%.
Moody’s also said that, in the event of a bankruptcy filing by any of the Detroit firms, there it was highly likely the government would act to prevent a free-fall or uncontrolled bankruptcy in order to contain the severe disruption to the supplier base and the broader economy.
