The US government may seek to ease General Motors into what it calls a “controlled” bankruptcy, somewhere between a prepackaged bankruptcy and court chaos, by persuading at least some creditors to agree to a plan that would divide the company into two pieces, people briefed on the matter have told the New York Times.
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Instead of signing on every creditor as is typically required in prepackaged deals, administration officials are using as leverage the promise of taxpayer financing. Many regard the government as the only lender willing to step up with money – in bankruptcy or out, the paper said.
GM’s new chief, Fritz Henderson, has also said that pressure from the government has pushed the automaker closer to bankruptcy.
“By no later than 1 June, if we’re not able to accomplish this outside bankruptcy, we’ll be in bankruptcy,” he said at a news conference in Detroit on Tuesday. “It’s pretty clear. The government was unequivocal.”
The report said the effort was a new role for the government, which has not pushed companies into bankruptcy in the past as much as it has stepped in when all else fails.
The New York Times said the administration appeared to be borrowing on experience with troubled banks with the goal of creating a new, healthier GM but leaving behind its liabilities and less valuable assets, perhaps for liquidation.
The paper’s sources said GM would file for prearranged bankruptcy and then use a sale authorised under Section 363 of the bankruptcy code to quickly sell off the desirable assets to a new company financed by the government. Such good pieces might include the Cadillac and Chevrolet brands, as well as assets the company needs to run the business.
Less desirable assets, brands like Hummer and under-performing factories, would be left in the old company. Proceeds from the sales, including stock in the new company, would be given to the old GM, helping to settle claims.
Details are subject to change after further talks, the sources said.
The New York Times said the administration hopes to win support from some of GM’s creditors, notably the United Automobile Workers, which would be forced to pare its health care benefits and whose pension obligations would probably remain in the old company. But the bankruptcy code allows a judge to approve a sale even over creditor objections in an emergency under Section 363, legal experts said.
One goal of any reorganisation plan would be to minimise disruption to other businesses.
“This would rank as one of the most, if not the most complex bankruptcy in history,” Stephen Cooper, founder and former chairman of Zolfo Cooper, a turnaround firm, told the paper. Cooper has form: he ran Enron during its bankruptcy and added that politics would influence any plan.
There would be pressure to keep plants open, to keep employment in communities high, he said, “because typically GM or Ford or Chrysler are very substantial contributors to the local tax receipt flow.”
Meanwhile, an administration official told Reuters that president Obama’s thinking on the crisis facing GM had not changed since Monday.
“Nothing has changed on this,” the official said when asked about an earlier Bloomberg report that the president had determined a prepackaged bankruptcy was the best way for GM to restructure and become competitive. “This report is not accurate.”
The White House wants the 60-day period for GM and a 30-day period for Chrysler to play out, as announced by the president on Monday, the official said, speaking on condition of anonymity.
