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Bankruptcy may be good option for GM - analysts
Published in Saudi Press Agency on 18 - 02 - 2009


A government-backed bankruptcy
reorganization may still be a viable option for saving General
Motors Corp and Chrysler LLC, analysts said on Wednesday, even
though the automakers have said they would rather not go down
that road, according to Reuters.
GM and Chrysler asked for billions of dollars more in
federal aid on Tuesday and announced sweeping changes including
capacity reduction and job cuts.
Some Wall Street analysts were disappointed that the
restructuring plans submitted to the U.S. Treasury did not
include key concessions from the United Auto Workers union and
the bondholders.
One analyst said that taking the bankruptcy option off the
table would reduce the bargaining power of the companies.
Both GM and Chrysler analyzed a possible bankruptcy filing
in their restructuring plans but stressed that it was not their
preferred method for reorganizing and that they hoped to avoid
this scenario.
GM, which has requested $16.4 billion in additional loans
from the U.S. government for a total of up to $30 billion, has
said it would run out of cash as soon as March without new
federal funding.
The request came shortly after smaller rival Chrysler LLC
asked for additional $5 billion in aid.
GM's request that a sizable chunk of total aid come in the
form of preferred equity rather than debt is a "tacit
acknowledgment of the fact that GM may emerge from an
out-of-court process as a still highly levered firm," JP Morgan
analyst Himanshu Patel said.
David Leiker, analyst with Robert W Baird, still sees
bankruptcy as the best option for a reorganization.
"Though likely to be painful near-term, we continue to
believe that the challenges to restructuring GM and Chrysler are
too complicated to be met outside of a bankruptcy," Leiker
said.
In its restructuring blueprint, GM estimated that if it was
forced to reorganize in a traditional bankruptcy, the tab for
the government could touch $100 billion in bankruptcy
financing.
Chrysler estimated that the bill for such a scenario could
hit $1,200 per taxpayer.
GM also outlined cost-reduction actions but still has to
reach an agreement with its bondholders and the UAW on how to
reduce the roughly $48 billion it owes to both groups.
But an equity-for-debt swap, which is being considered,
could significantly hit stockholders.
"A substantial majority of the pro-forma equity in General
Motors would be distributed to exchanging bondholders and the
UAW VEBA," Credit Suisse analyst Chris Ceraso said. "The
existing equity holders would largely be wiped out by the bond
and VEBA exchanges."
GM shares were down 10 cents or 4.6 percent at $2.08 at
midday on the New York Stock Exchange.


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