SHARES OF General Motors (GM) plunged 17 per cent yesterday after a report that the US Treasury is directing the automaker to lay the groundwork for a bankruptcy filing by June 1st.
GM, which is operating under $13.4 billion (€10.1 billion) of emergency government loans, has until June 1st to win sweeping concessions from bondholders and the United Auto Workers union. The Obama administration has warned that the alternative would be bankruptcy.
The New York Times reported on Sunday that the government’s goal was to prepare for a fast “surgical” bankruptcy, quoting people who had been briefed on the GM plans.
Sources familiar with the situation told reporters that GM was in “intense” and “earnest” preparations for a possible bankruptcy filing.
GM has been told by the Obama administration’s taskforce overseeing its bailout that it must cut costs and reduce its debts in order to continue to receive aid.
The White House-appointed autos taskforce has given GM 60 days to come up with a restructuring plan and it is trying to determine whether the automaker can be a viable company.
JPMorgan analyst Himanshu Patel said that deep balance sheet restructurings asked for by the US Treasury would be a tough pill to swallow for bondholders and the United Automobile Workers union, making bankruptcy more likely.
The newspaper reported that preparations are aimed at assuring a GM bankruptcy filing is ready if the company is unable to reach agreement with bondholders to exchange roughly $28 billion in debt into equity in GM, and with the union.
A plan under consideration would create a new company that would buy the "good" assets of GM after the carmaker files for bankruptcy, the New York Timessaid.
Less desirable assets, including unwanted brands, factories and healthcare obligations, would be left in the old company, which could be liquidated over several years, according to the paper.
Treasury officials are examining one potential outcome in which the viable GM enters and exits bankruptcy protection in as little as two weeks, using $5 billion to $7 billion in federal financing, a person briefed on the matter told the Times. The newspaper's sources declined to be identified because they were not authorised to discuss the process. GM and Treasury Department officials declined to comment, the newspaper reported.
GM’s chief executive has said the automaker wanted to restructure out of court, but was also preparing for a bankruptcy filing.
Shares of GM were down 17 per cent, or 36c, to $1.66 on the New York Stock Exchange yesterday morning. – (Reuters)
