GM Told to Get Ready for “Surgical” Bankruptcy on June 1

April 13, 2009

(ChattahBox)—The New York Times is reporting this morning, based on reports from unnamed officials involved in the process, of a government plan in the works to put GM through a fast track type of “surgical” bankruptcy, which could be complete within two weeks of filing. The unnamed officials told the NY Times, the Treasury Department and members of the automotive task force are directing new General Motors CEO, Fritz Henderson to start laying the groundwork now, for a possible June 1, bankruptcy filing.

Despite Henderson’s insistence that GM may be able to come out of its financial mess without a court filed bankruptcy, the writing seems to be on the wall, unless GM can reach concession agreements with both union workers and bondholders by the government imposed deadline of June 1. Even with the involvement of government officials to help persuade concession deals, both groups are holding firm.

Henderson, unlike former CEO Rick Wagoner who was canned by President Obama last month, is able to operate in reality, and is directing his staff and legal team to prepare the extensive paperwork required for a bankruptcy filing and to cooperate with government auto task force members.

Henderson recognizes the damage a long drawn out bankruptcy could do to the already ailing GM, possibly permanently driving away any remaining customers and further damaging the brand.

Officials involved in the process envision a type of schizophrenic good and bad GM. The good entity would hold all the desirable and profitable assets and the bad firm holding all the bad assets, including health care obligations and obsolete brands, which would eventually be liquidated.

If this all sounds like it would be an easy cut and dry process, it isn’t by any means. A bankruptcy filing of this size requires reams of paperwork, including a comprehensive business plan, all prepared by high-priced bankruptcy attorneys and consultants. However, President Obama is offering GM access to the extensive government resources to help prepare the complicated bankruptcy filing in record time.

A couple of issues hover over a possible GM restructuring. The most important, in President Obama’s view, is the fate of the worker’s pension plans, under funded by $13.5 billion. People involved in the process envision another government bailout down the road to save the employee pensions.

The second issue involves the fate of auto parts supplier, Delphi that is hanging by a thread, already in bankruptcy, currently seeking to obtain a restructuring agreement from GM. If Delphi is unable to wrangle a deal out of GM, the giant company could face liquidation.

Expect more leaks from unnamed sources in the near future as the June 1 deadline approaches.


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