In the News: GM Bankruptcy – The Good and The Bad Companies
As Bloomberg reports, GM is planning to file for bankruptcy protection as early as Monday. The plan being brought forth before the court will be that of splitting GM into a Good GM and a Bad GM. Sound familiar – it should. The “Good X/Bad X” is not a new strategy for this administration by any means. This strategy is the same one being implemented for the speedy Chrysler bankruptcy, and is the same idea that was used back in the day for the toxic mortgage assets on bank balance sheets. Will it work…who knows…the alternative, however, is GM failure, so I guess it is worth a shot, and, honestly, sounds decent enough in theory.
Specifically, the Good GM will be the “new” GM, and will ideally be performing as a viable company within 60-90 days, while the court liquidates and disperses the Bad GM assets and such. Rather than ramble on and on about what the new entity will look like, I’ll just provide a quick summary, and allow you to skim through the full article, which I recommend, on Bloomberg.
Good GM:
Will consist of Cadillac, GMC, Chevrolet and Buick
Will slash debt to about $17 billion, excluding financing obligations to suppliers and warranty programs
Will pay union employees lower wages
Will be controlled by the U.S. government, with the Canadian government possibly owning a small share. A union health-care trust will own 17.5%, a whopping 10% will be given to the old GM bondholders to resolve claims – so generous, and a big goose egg (0%) will be given to shareholders (down from the 1% previously discussed)
Will offer warrants to buy an additional 15% of equity, provided a “satisfactory” number of bondholders agree to go along with GM’s restructuring program – otherwise they may end up getting nothing
Bad GM:
Will sell off Saab, which is already in bankruptcy, Hummer, Saturn, Pontiac, and as many as 16 factories
Will be the child of the shareholders, along with the bondholders remaining claims – so, essentially, stockholders should be getting pretty much nothing, considering bondholders are entitled to recover their money first
