A Possible GM Bankruptcy May Screw Bondholders

Reuters described the possibility that when General Motors (GM) files for bankruptcy, it too will commence a section “363 sale”. This is the code word for totally screwing the bondholders. In a normal bankruptcy, one that follows the rule of law - a judge oversees the timely liquidation of any assets for the benefit of the secured creditors. Lately - Chrysler and GM - under the watchful eye of the US Government have been given the go ahead to “screw” the bondholders. The sales, expected to take place do not fall within the law. If they do then it is a tremendous stretch of what the law was originally intended for. I’m not an attorney, but something certainly smells rotten in Denmark.

“We are considering … alternatives in consultation with the U.S. Department of the Treasury, our largest lender,” GM said in its SEC filing. “We currently believe that if we pursue one of these (bankruptcy) alternatives, a 363(b) sale would be the most likely.”

Chrysler, which filed for bankruptcy protection on April 30 after failing to win a deal with secured lenders to cut its debt, aims to use that provision of the bankruptcy code to complete a sale of most of its operations to Italy’s Fiat SpA (FIATY.PK) later this month.

It was not immediately clear what entity would buy GM assets out of bankruptcy, but analysts have said an entity backed by the U.S. government was one likely alternative.

U.S. officials with the Obama administration’s autos task force have described Chrysler’s strategy as a “quick rinse” or a “surgical” bankruptcy intended to allow the automaker to resume operations quickly and minimize uncertainty for consumers.

But the process has also proved controversial because of the administration’s insistence that the United Auto Workers union have its unsecured claims against Chrysler paid out at a higher rate than the recovery for the higher-ranking secured debt.

Analysts have said similar disputes between creditors could complicate any GM restructuring under court protection. (reuters)

Surgical Bankruptcy and “Quick Rinse”…..give me a break. I’m sick and tired of the government not following the rule of law and then coming up with these stupid terms to make it sound like it’s necessary and justified.

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Comment by Gilles

2009-05-26 00:50:33

If GM and Chrysler come out of this screwing bondholders and people who invest their money and lose it to UAW and others. I would definitely boycott their products and I think many Americans will also do so and all this surgical bankruptcy stuff will all be for nothing. I will refuse to buy any of these products as I boycott United Airlines for screwing their shareholders. I avoid that airline at all costs.
It is important that fairness be a part of these negotiations. Also you can throw all the money you want at these companies, but they make bad products and they pay their workers way too much… They are still gonna fail… unless car rental companies can support them… oh and police cars…
There is a lot of frantic movement about stopping them from failing, but nobody really addresses the issue of their products… People want better products at cheaper prices… cut the workers pay.. work on design and innovation make a product people want to buy.. oh and by the way shelve.. the whole planned obsolescence notion… that didn’t work either!

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Comment by aj bataiff

2009-06-06 16:10:41

So much for the sanctity of contracts.

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