GM May Be Heading for Quick, Packaged Bankruptcy

By Paul Raman

General Motors Corp. (GM) appears to be heading to bankruptcy court for a quick pre-packaged bankruptcy. This is after the bond holders who hold $27 billion in debt agreed to an offer that would give them 10% of the restructured GM with an ability to take it to 15% with warrants. They must agree that assets will be sold to a new company in bankruptcy (good GM/bad GM).

This is lower than the 58% ownership that they were looking for originally. It is also believed that there are treasury incentives to back up the bondholders. GM indicated that it may not make $1 billion of debt payments on June 1. However, it is believed that this will be covered by the Government.

The Government is likely to hold 70% of the equity of GM post-bankruptcy, which is reimbursement for $20 billion already given to the company and an expected $40 billion more when a filing occurs. Some is this will be for the under-funded pension, which is near $13 billion. The UAW will have 20% of the company.

Pontiac will be phased out, while negotiations to sell Hummer and Saab continue. GM will emerge with $25 billion of secured debt post bankruptcy.

Overall, Ford (F), Honda (HMC), Nissan (NSANY) and Toyota (TM) are likely to be beneficiaries from any lost sales, although a quick bankruptcy may keep this to a minimum (there are rumors that Chrysler is close to an exit).

Major suppliers that could impacted in the near-term with lower volumes are: Magna (MGA), Lear (LEA), American Axle and Manufacturing (AXL) and ArvinMeritor (ARM).

Comments

[epeon:]

I read that the head of the UAW said that GM will make sub-compacts in the US and will not be importing cars from Chinese. He didn't hem or haw. It looks like he is in charge. I am sure tha the UAW will manage GM very wisely.

May 28 04:01 PM

[TeresaE:]

"Quick, Packaged" death to the remnants of our economy.

Yep, push GM's bad business decisions onto their suppliers, vendors and distributors.

Those customers aren't important to the UAW, the fed or the rest of the country.

This first bankruptcy may be quick and packaged, the next one is going to be bloody and brutal.

The UAW can only hope there is enough left of the economy for the government to absorb their pensions & health care.

Good luck with that.

May 28 05:24 PM

[moneynevers...:]

any predictions as to who will replace GM in the S&P? We are going with Visa, Ross Stores or Western Digital. The Dow is a wildcard, but we have some thoughts on that here:
moneyneversleepsblog.b...

what I want to know is who the hell is still buying GM stock?! and why??!! Time to suspend trading and turn out the lights...

May 28 06:46 PM

[doubleguns:]

It wont be quick and it wont be pretty. To many lawyers in this country.

I thought they did suspend trading this morning.

May 28 09:33 PM

[Speedspirit:]

Word is that the Govt is paying off 100% on GM's creditors. Federal government proposed to bailout GM's secured bank creditors—the biggest being J.P. Morgan Chase, Citigroup, and Credit Suisse—at the full face value of their loans. Some Bankruptcy!

May 28 09:39 PM

[Michael Terry:]

They are not getting paid off, their debt travels to "new GM" as it is secured by the assets being transferred.


On May 28 09:39 PM Speedspirit wrote:

> Word is that the Govt is paying off 100% on GM's creditors. Federal
> government proposed to bailout GM's secured bank creditors—the biggest
> being J.P. Morgan Chase, Citigroup, and Credit Suisse—at the full
> face value of their loans. Some Bankruptcy!

May 28 11:14 PM

[Michael Terry:]

This is after the bond holders who hold $27 billion in debt agreed to an offer that would give them 10% of the restructured GM with an ability to take it to 15% with warrants.

No, a group representing 20% of the debt has agreed. Not all bondholders. Some haven't taken money from the government and aren't looking to get government leverage to buy underpriced assets (spelled PPIP).

May 28 11:16 PM

[VP of Commo...:]

Is this an obvious short to everyone else as well?

May 28 11:52 PM

[FE812:]

I wish I could buy stock in Government ... I've never seen growth like this.

Am I the only person who didn't skip right over the "Government holding 70% of GM equity post bankruptcy"?

I'm so far past worrying about the economic ramifications of what's going on right now. The political issues are a lot scarier.

May 29 12:46 AM

[spald_fr:]

The UAW is the straw man in this escapade. People cannot see how the banks are being bailed out in EVERY endeavor they are involved. It is unreal.


On May 28 09:39 PM Speedspirit wrote:

> Word is that the Govt is paying off 100% on GM's creditors. Federal government proposed to bailout GM's secured bank creditors—the biggest being J.P. Morgan Chase, Citigroup, and Credit Suisse—at the full face value of their loans. Some Bankruptcy!

May 29 09:31 AM

[balabanovj:]

I keep reading in articles that refer to suppliers that Lear is short of cash. Well, this just isn't the case. Yes, they would like to have more to assure their survival even better through the next year, but they have over 1.2B as of this moment and during their last conference, they said their total cash burn through the end of the year would be no more than 200m. This cash burn will also complete their restructuring. The only uncertainty with Lear is whether or not their counterparties will re-negotiate their loan covenants in a more long term way. Unless they are well covered on CDS's, I think re-negotiation would be in their best interest. Lear is a great company, and when business is good, they have better margins then just about any of the rest, so if they can "squeak" by through all this, without going Ch11, those who are holding their stock now will be sitting very pretty! Lear is heavy into the Chinese car market, which happens to be doing very well right now and it's looking very much like a turnaround in the US and Europe by the end of the year, so IMO, given forbearance by their lenders, Lear can tough it out. They have enough cash to service their loans and the complete their restructuring, and then some. If they survive, lear will be back to $20 by the end of next year and perhaps $40 by the end of '11.

JBB
Disclosure: Long on LEA

Jun 01 03:11 AM