Bondholders Clear Path For GM Bankruptcy

It's never a wise thing to predict a smooth bankruptcy. Especially when you you are dealing with a company as large, as complex, and as loaded down with debt as General Motors. But just days before the Treasury Department ushers the auto maker into Chapter 11 protection, it appears as though the path has been cleared for the smoothest and quickest trip through bankruptcy that is possible.

I know, right now skeptics are rolling their eyes and scoffing at the idea of a "new" GM rolling out of bankruptcy relatively quickly. Perhaps not as fast as what we are seeing with Chrysler, but still much quicker than we usually see with a major corporate bankruptcy.

GM Bankruptcy
GM Bankruptcy

The big break through is the revised capital structure for the new GM that includes the Treasury Department putting $40 Billion into the equity of the new GM. That decision, along with a revised offer accepted by GMs major unsecured bondholders (they get 10% equity stake and the option to buy another 15%) means things are lining up for a more orderly GM bankruptcy. In accepting the debt deal, the committee of GM bondholders said, "rejecting this offer in the expectation that the bondholders will do better in a litigated outcome was a risk the Committee is unwilling to take.”

Limiting the risks of bankruptcy is the primary goal of the Treasury Department. It wants a new GM to emerge from bankruptcy as quickly as possible. It needs make sure there are as few set backs as possible in court. Locking in a deal with GM bond holders and the UAW means there are fewer legal hurdles to clear in court.

Yes, there will be hundreds of objections and motions to stop the 363 process from dealers, investment firms, municipalities who will not benefit when the "new" GM is created. If Chrysler is any indication, the bankruptcy court in New York is likely to rule in favor of GM.

Click on Ticker to Track Corporate News:

- Ford

- General Motors

- Toyota Motor

- Nissan

- Honda Motor


Questions? Comments?