General Motors is in “intense” and “earnest” preparations for a possible bankruptcy filing, Reuters reported, citing a source familiar with the company’s plans.þþA plan to split the corporation into a “new” company made up of the most successful units, and an “old” one of its less-profitable units, is gaining momentum and is seen as the most sensible configuration, another source familiar with the talks told the news service.þþIf the plan goes through, the new G.M. would be expected to assume some previous creditor debt from bankruptcy proceedings, such as secured debt, the second source told Reuters, adding that G.M. bondholders were likely to lose substantial value in bankruptcy.þþBloomberg News reported that G.M.’s board met yesterday and April 5, and more discussions are planned inside the company and with the Obama administration.þþCertain G.M. dealer and litigation claims would also be hurt if the new company structure is used as part of a company bankruptcy, according to Reuters.þþG.M. declined to comment, the news service said.þþShares of G.M. fell almost 12 percent on the New York Stock Exchange to end at $2.00.þþG.M., operating on $13.4 billion of government loans since the start of the year, has until June 1 to complete a reorganization plan. The government has warned that the alternative would be bankruptcy.þþThe company is under pressure to cut unsecured debt by two-thirds, turn half its remaining payments into a union healthcare trust in the form of equity rather than cash, and reduce hourly wages and benefits to match those paid by foreign automakers.þþThe chances of a G.M. bankruptcy appear to have increased in recent days, since the Obama administration rejected the company’s restructuring plan. Fritz Henderson, who was named chief executive at G.M. last week, said Sunday that bankruptcy “may very well be” G.M.’s alternative to an out-of-court restructuring. “If it can’t be done outside of a bankruptcy process, it will be done within it,” he said in an interview on “Meet the Press” on NBC.þþChrysler, owned by Cerberus Capital Management , is also facing possible bankruptcy. The automaker has until April 30 to complete an alliance with Italian automaker Fiat.þþMoody’s Investor Service said in a note dated Monday that it maintains its view for a 70 percent risk of bankruptcy for Detroit’s three automakers given the difficulty of restructuring out of court.þþ“If a company of this size files for bankruptcy, they have to be preparing for it now as time is running out and bankruptcy becomes more real,” Van Conway, a turnaround expert at Conway MacKenzie, told Reuters.þþ“But I think they should attempt to avoid it because emerging out of bankruptcy would be very difficult. Given its very large, global operations and various stakeholders, the process will take a lot longer than what people think,” Mr. Conway told the news service.þþCanadian Industry Minister Tony Clement said on Tuesday that the Canadian government must be prepared for GM or Chrysler to enter bankruptcy protection.þþSome bankruptcy experts say a Chapter 11 bankruptcy filing could help G.M. reorganize by allowing it to restructure its debt and force changes to contracts with dealers, unions and suppliers. But the process could be disruptive, or derailed, Patrick Carothers, a partner at Thorp, Reed & Armstrong LLP, told Reuters.þþFor example, if auto-parts makers lose the ability to collect money owed, the industry as a whole could suffer. In addition, G.M. could lose control over its restructuring as the formation of a new company would be in the hands of a bankruptcy judge, not corporate executives or their advisers.þþ“The dangers of a bankruptcy are significant,” Mr. Carothers, who has parts suppliers and car dealers as clients, told Reuters. “I don’t believe a bankruptcy is inevitable. There’s still a lot of political pressure to save it.”þþLast month, G.M. offered bondholders 8 cents on the dollar in cash, 16 cents on the dollar in new unsecured debt, and a 90 percent stake in the automaker, Reuters said, citing one person with knowledge of the term sheet.þþ
Source: NY Times
