Turnaround experts have warned that a government-directed General Motors bankruptcy is unlikely to be as fast or as simple as the US treasury department hopes.
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The reasons: court-supervised bankruptcy proceedings are essentially democratic, and all stakeholders – which would include GM’s unions, dealers, suppliers and creditors – have the right to raise objections, Agence France-Presse (AFP) said.
“They all have legal claims, and I don’t see where the administration can ‘force’ them to abandon those claims,” AutoPacific analyst Stephanie Brinley told the news agency. “Why agree to something GM wants if you think the law is on your side and a bankruptcy judge might decide in your favour?”
On Monday (13 April) the New York Times said the treasury had directed GM to prepare for a bankruptcy court-supervised restructuring despite the company’s recent public position it could still reorganise outside court.
The paper added GM would be put through a fast, ‘surgical’ bankruptcy and possibly split into ‘good’ (ie profitable units and brands) and ‘old’ companies, the latter containing the less successful brands and units plus the pension and healthcare liabilities that have weighed GM down in recent years.
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By GlobalData“Conceptually it makes sense. But there are some serious legal issues that have to be overcome,” Brad Coutler, an analyst with O’Keefe & Associates which specialises in turning around distressed firms, told AFP.
The news agency noted that stakeholder objections have complicated the long-running Delphi bankruptcy proceedings, still unfinished after almost four years in chapter 11.
Coutler told AFP that, even with government guarantees, the bankruptcy would worry suppliers, any one of which could threaten to shut down GM.
“One of the first things they would have to do is get a critical vendors motion from the court so your suppliers can be paid,” he said.
Creditors were pressing GM for a better deal, analysts told AFP .
“GM’s creditors seem to believe that they should get a better deal than the car company is offering them so that it can reduce its debt,” Douglas McIntyre of 24/7 Wall Street said.
“Even the most senior creditors are being asked to take a very modest portion of the face value of their loans to help the huge car company get out of financial trouble,” he added.
Creditors believe that they have the ability to stop or at least draw out a chapter 11 bankruptcy process, McIntyre added.
“That would make a bankruptcy less attractive to the treasury, which would simply like to get the GM matter resolved in a way that does the least to disrupt the industry, its suppliers, and its employees,” he said.
The United Auto Workers union remains opposed to the idea of a GM bankruptcy but union sources told AFP their negotiators were not being given any acceptable options.
“I don’t think they’re at all happy with the position they are in,” one union source familiar with the negotiations said.
GM declined to comment on the speculation but said it was preparing for any eventuality.
“We are taking more aggressive actions to restructure operations and reduce liabilities and debt on our balance sheet with the goal of doing this out of court,” GM spokeswoman Katie McBride said. “If we are unable to restructure out of court we are prepared to use the available legal processes to get the job done.”
The Wall Street Journal, meanwhile, said GM’s unsecured bondholders were “already on the verge of mutiny”, fearing they won’t get their US$29bn in GM debt, while the UAW was unlikely to let go of GM’s commitments to healthcare payments and retiree benefits without a fight.
The plan called for GM to take the money from the sale of its “good brands” and put that towards paying off the obligations, the WSJ said.
GM’s plans go far beyond what any company has been able to accomplish previously through sales brokered through bankruptcy court, which are known as ‘[chapter] 363 sales’, it added.
just-auto’s analysis: GM bankruptcy: brinkmanship, or smart minds at work?
