>> Monday, June 1, 2009
In a widely anticipated move, General Motors today became the second Detroit-based automaker to recently file for Chapter 11 bankruptcy. Despite receiving nearly $20 billion in loans from the U.S. Treasury Department, along with last-minute, debt-for-equity deals with bondholders and concessions from both its U.S. and Canadian worker unions, GM’s U.S. operations have joined rival Chrysler in court protection as both companies try to downsize themselves in a drastically depressed market.
In what amounts to a nationalization of GM by the federal government, the U.S. Treasury is providing the company with about $30 billion in debtor-in-procession financing to make it through bankruptcy—raising GM’s government assistance total to about $50 billion. The investment results in the Treasury gaining a 60-percent interest in GM. About 18 percent will be held by the United Auto Workers’ Voluntary Employee Beneficiary Association (VEBA), while the Canadian government will own about 12 percent. Unsecured bondholders and creditors will get the remaining 10 percent, as well as the potential to acquire another 15 percent down the road.
Under the terms of the reorganization and similar to the restructuring path forged by Chrysler, the sale of which to Italy’s Fiat has been approved by the U.S. Bankruptcy Court, GM will be split into two entities: a “good GM,” which includes the core Chevrolet, Cadillac, GMC, and Buick brands and the facilities to support those divisions; and a “bad GM,” comprised of redundant/unprofitable plants and the underperforming Hummer, Saturn, Saab, and Pontiac operations. The goal of the bankruptcy process is for the existing, overburdened automaker to turn over its best assets to a less debt-riddled “New GM.” The New GM is expected to emerge from court protection in 60–90 days as a leaner, more agile company with fewer brands, dealers, and long-term obligations. The leftover assets likely will be mired in Chapter 7 liquidation for much longer, however, as they are individually sold off or shut down entirely.
Keep Reading: What You Need to Know About the GM Bankruptcy - Car News