WASHINGTON (AFP)--General Motors Corp. (GM) is likely to take a
page from Chrysler LLC's playbook in an expected bankruptcy that
tests a legal strategy for a quick restructuring with heavy
government backing, analysts said.
GM, which faces a June 1 deadline from the U.S. government to
come up with a viability plan or face a cutoff of aid, is widely
expected to follow rival Chrysler into bankruptcy and use a similar
plan to emerge leaner and more competitive.
Yet the two companies could still face legal hurdles and loud
objections from the financial sector in a test for the plan by
President Barack Obama's administration to save the two automakers
critical to the U.S. economy, analysts say.
"I think GM will learn a lot from the Chrysler bankruptcy," said
one bankruptcy attorney, who asked to remain anonymous, but is
familiar with the Chrysler case and represents auto industry
clients.
"I would expect GM to file in the same court. The fast track was
adopted by the bankruptcy court and it is key to GM as it was for
Chrysler."
GM, which is widely expected to seek court protection even while
it scrambles to win cost savings, would represent a much larger
bankruptcy case with thousands of investors and other parties, but
both firms are trying to shed debt and legacy costs including for
vast numbers of retirees.
"I think (bankruptcy) will be a little smoother for GM," the
attorney said.
"If I were representing GM I would get on the same railroad as
Chrysler and ride it."
The notion of a quick, surgical bankruptcy is being touted by
the administration as the only means of saving the critically
important auto firms, but has nonetheless drawn fierce objections
about skirting creditor rights to get a quick exit.
In the Chrysler case, and most likely in the GM case, the
company may remain under court supervision but the key assets would
be sold to a new entity free of most debt, providing a fresh
start.
But some complain that the financial sector is being forced to
make bigger sacrifices than the United Auto Workers union and
others.
David Cole, chairman of the Michigan-based Center for Automotive
Research, said the tough stand against holders of debt could prove
costly over the long term.
"The government wants to be paid back and have an equity
position and stick it to the financial industry," he said. "If I
were in the financial industry I would be very suspicious."
Kent Engelke at Capitol Securities Management, said the
administration plan for GM, based on reports, "is asking the senior
debt holders to forgive $27 billion in debt for 10% of the company.
The U.S. Treasury and the UAW will forgive $20 billion and receive
89% of the newly formed company."
The plan, he said, "sacrifices the senior debt holders for the
unions. This is wrong, lacking legal precedent, violating the most
basic rule of law and capital structure."
The bankruptcy court judge is set to decide Wednesday whether to
approve the Chrysler plan, which would sell the automaker's main
assets to a new group led by Italy's Fiat SpA (F.MI) but with a
majority stake held by the UAW and smaller stakes for the U.S. and
Canadian governments.
This could clear the way for a new Chrysler to emerge within
another 30 days or so, but could be delayed by legal appeals if a
judge decides to halt the sale to examine questions further,
analysts say.
Jonathan Lipson, a Temple University law professor, said the
Obama administration may be taking a major role in the auto cases
to counter hedge funds and others that buy up debt through "what is
essentially an unregulated securities market."
"The federal government may recognize that hedge funds and
private equity funds that hold large amounts of Chrysler (and
perhaps GM) debt cannot be trusted to act in ways that will make a
successful reorganization likely," Lipson said.
"These private investors are, of course, the same sorts of
entities that constitute the 'shadow banking system' that has been
blamed for much of the larger financial crisis."
Jeremy Anwyl, chief executive at the research firm Edmunds.com,
said he was "uncomfortable" about the role of the government in the
companies, but sees no alternative.
"Pragmatically there is no way a company could go through this
level of restructuring without the government as a mediator," he
said.
"This is a role that nobody but the government can play."