Treasury Directs GM to Prepare for Bankruptcy Filing

One delicate issue for federal officials is the fate of GM’s employee pension plans, which could become the responsibility of the federal pension agency if GM seeks their termination.

GM faces an unfunded liability of about $13.5 billion for its plans, which had $84.5 billion in assets and $98 billion in liabilities as of Dec. 31. That amount could sink the pension agency, requiring its own bailout before a GM case could be resolved.

The White House has at least one option to protect the plan.

The Supreme Court, in a landmark 1990 case, ordered the LTV Corporation, a steel maker, to take back responsibility for its pension plans after it emerged from bankruptcy protection.

The pension agency had allowed the steel company to terminate its plans, only to see LTV negotiate a new plan with the United Steelworkers of America in which it agreed to make up a large portion of benefits that workers had lost.

LTV eventually sought bankruptcy protection again and liquidated in 2002, when the federal pension agency assumed the company’s pension liabilities.

While Mr. Obama’s auto task force has held only one meeting with GM’s bondholders — who had rejected the company’s previous reorganization plan as too onerous — it is still seeking to win union support for a swift bankruptcy, one person involved in the discussions said.

But the task force is reasonably confident that its restructuring plan could still pass muster with a federal bankruptcy judge even if the union does not accede to the proposal, this person said.

A creditors committee for the “new GM” would be formed in advance, to start working as soon as the case begins, while those with claims against GM would be asked by Treasury to quickly agree on terms to settle the claims.

Still, if the government and GM cannot bring all creditors on board, they are likely to argue that creating the new GM is an emergency move needed to preserve the value of the carmaker’s good assets. Bankruptcy judges are given a lot of leeway to decide what is in the best interest of all parties in a bankruptcy case.

Another question hanging over GM is the fate of Delphi, the giant supplier of auto parts that has been in bankruptcy for more than three years.

Delphi, which was once owned by GM, has been in talks with GM, the auto task force and its lenders over its own restructuring. The administration has set an April 17 deadline for Delphi to reach an accord over GM’s continued support for the parts supplier, which could be pushed back as late as April 24, according to a person briefed on the matter.

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Should Delphi fail to reach an agreement with GM and the administration, it could be forced to liquidate, this person said. In that event — a prospect that the task force is preparing for — the government and GM may acquire some parts of Delphi’s business out of liquidation.

This story originally appeared in The New York Times

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