Bloomberg reported that General Motors (GM) and Chrysler LLC may have to be forced into bankruptcy by the U.S. government in order to assure repayment of $17.4B in federal bailout loans.
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Gov’t Explores Move To Push GM Into Bankruptcy
Posted by Bob O'Brien
EFFORT AIMS TO MOVE TAXPAYERS TO TOP OF CREDITOR LINE
General Motors (GM) isn’t necessarily out of the woods in terms of a bankruptcy risk, though a move to push the ailing automaker into Chapter 11 protection wouldn’t likely alter the company’s recovery, or result in a dramatic change in operations.
Media reports said the federal government, which has lent the auto maker and rival Chrysler a combined $17.4 billion in relief, wanted to move to the head of the line of creditors that would be reimbursed for loan payments. As it stands, the government’s claims have been subordinated behind other creditors, including bankers JPMorgan (JPM) and Goldman Sachs (GS) - a pecking order the feds find inhospitable, given the political exposure viewed in bailing out private enterprise.
By pushing the auto maker into bankruptcy, the government hopes to alter the payment plan in a manner that would make its repayment plans superior to that of private-enterprise lenders, and give taxpayers the first bite of the recovery apple. The deal would allow the government to offer GM a debtor-in-possession loan, thus elevating its claims on GM income. In short, the government would be buying its way to the top of the line.
Meanwhile, GM has been considering a plan to buy back some of the plants of Delphia Automotive, the parts supplier that has been operating under bankruptcy protection for three years.