GM appears headed for a long, complex bankruptcy

McClatchy NewspapersMay 26, 2009 

WASHINGTON — With a June 1 deadline fast approaching, General Motors reached tentative agreement with a key stakeholder, but by late Tuesday a bankruptcy filing looked all but inevitable.

Such a bankruptcy proceeding is likely to be longer and messier for GM than Chrysler's recent bankruptcy was, industry experts said, and it's likely to trigger a chain reaction of bankruptcies among GM suppliers.

A GM bankruptcy filing is likely to be much more complex than Chrysler's recent Chapter 11 bankruptcy filing. Chrysler is a privately held company with fewer aggrieved stakeholders; GM is a publicly traded global corporation.

Nevertheless, the Obama administration has decided on the bankruptcy route for GM, and is now discovering what a long and winding road that's likely to be.

"It's seems like almost every day we come upon some issue or question that didn't exist with Chrysler," said one person familiar with ongoing talks, who spoke only on the condition of anonymity as a matter of policy. "We do expect it to be a more complicated process and a longer process (in bankruptcy) . . . . It's not something we're afraid of, not something we have chosen, but it is what it is."

GM's global reach will complicate restructuring efforts.

"It is a completely different ballgame when you are looking at a company as geographically diverse as GM is . . . we've never had a company this large declare bankruptcy," said Rebecca Lindland, an auto industry analyst for forecaster IHS Global Insight.

Because GM is publicly traded, it must make a number of regulatory filings in coming days, and while the Obama administration may drive the process, it won't have control over the message as GM makes disclosures to its shareholders and investors.

The person familiar with the talks said this is "not necessarily be the timing we would choose" and warned of a "slightly confusing period for all of us" over the next week.

The United Auto Workers union, a major GM stakeholder, let word out Tuesday that it had reached tentative agreement with the automaker. Reports said that labor would get a 17.5 percent stake in a newly restructured GM and a seat on the board of directors.

The UAW also would receive $6.5 billion in preferred shares of the new GM, several news reports said, and these ownership stakes for the union come in exchange for health and welfare concessions agreed to by the UAW.

Lindland said the union might soon find itself in a place where it hasn't been before.

"They've always been insulated from the performance of GM," Lindland said. "That is about to change. With an equity state in General Motors, the fortunes of the union now go with the company."

Despite the UAW deal, the lack of agreement with the creditors who own more than $27 billion in GM corporate bonds makes a bankruptcy filing virtually certain. GM must get agreement from nine out of every 10 bondholders, who in turn would own 10 percent of the new GM. They're owed $1 billion in interest payments on June 1, money that the automaker says it doesn't have.

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