Two Week "Surgical" Bankruptcy for GM? REALLY!!!???!!!
Earlier this week The New York Times ran a story entitled "'Surgical' Bankruptcy Possible for G.M." . It suggested that the new plan being developed was for GM to be in and out of bankruptcy in TWO WEEKS!! REALLY!!????!! I didn't get off the boat yesterday.
I LOL (LAUGHED OUT LOUD for the uninitiated)!!!!!! It's a late April Fools joke, right? Two months maybe if everything went just so, but TWO WEEKS??? I don't think so.
GM continues to claim that a quick restructuring, preferably outside bankruptcy, is necessary so that its image and sales are not permanently damaged. NEWSFLASH!! GM's image and sales are already damaged - it has NOWHERE TO GO BUT UP!!!! In fact, bankruptcy might actually really help it do serious damage control.
One plan reportedly under consideration would essentially do a Bankruptcy Code section 363 sale. The idea would be to sell all the desirable "good assets" of GM to a newly created company, GM Newco, if you will. The less desirable assets would be left in the GM we know today (let's call it "old GM") and then liquidated, perhaps by converting the case to a Chapter 7. The "legacy" obligations such as pensions and health care costs would also be left in old GM; the idea would be that the funds received by old GM for the conveyance of the "good" assets to GM Newco would be used to pay only a portion of the obligations of old GM. The remaining portion would simply go unpaid, except to the extent paid by the Pension Benefit Guaranty Corporation which would be sorely challenged to fund this fully. Where would GM Newco get the money to do this? Probably from the taxpayers in the short run, although it would be possible to have the private sector buy new stock in GM Newco. Click here for a more detailed exp;lanation of how this would work.
I actually think this sounds like a pretty good idea and one which would allow GM to regoup and move forward as a company with some potential to become profitable again. I'm just extremely skeptical about the timeline being suggested.
Supposedly, the "creditors committee", which is an important force in any large (and even some not so mega) Chapter 11 case, would be formed prior to the filing and work on hammering out details before the filing occurred While that would certainly help speed up the time in bankruptcy, the creditors' committe only includes the very largest unsecured creditors and there's really no way to negotiate with every single creditor GM has before filing.
It only takes ONE objection to the contemplated 363 sale to slow things down. It seems virtually impossible to me that every single creditor will agree that the funds coming into old GM represents "fair consideration" for the assets conveyed to GM Newco. An objection on this basis would HAVE to be heard by the Bankruptcy Court and it seems to me that due process would require at least a modicum of time for preparation for this hearing by the party raising the objection.
There's also a question of how the legacy debts for pensions and contracts with labor unions would have to be dealt with. Section 1113 (concerning collective bargaining agreements) and 1114 o(concerning pensions) of the Bankruptcy Code might have something to say about that.
And at least some Bankruptcy Courts have refused to allow section 363 sales when they are tantamount to a Plan of Reorganization because they deal with substantially all or the core assets of a debtor. If you do have to go the plan route, there are statutory provisions in excess of two weeks that must be observed before a hearing can be held.
Others are skeptical too. Click here for another blogger's assessment of the challenges faced in making a two week "surgical" bankruptcy happen. And the WSJ is skeptical as well, especially about getting the bondholders on board. In a story entitled"A Risky Bankruptcy Loons for GM", David Welch of Businessweek mentions still other obstacles to be overcome.
Bottom line, there are just too many different constituencies, some of which it may not be possible, and certainly hardly feasible, to reach and interact with before the filing. If the proper groundwork is laid - and from the sounds of it, GM is finally almost out of denial about its options and ACTUALLY has started to explore the bankruptcy option in a meaningful way - two months would be an ambitious, but at least possible period of time to get through a prenegotiated (or as we're apparently calling it now, "surgical") bankruptcy. But TWO WEEKS - i just don't see how.
As for Chrysler, does it even have enough any "good" assets that it could do the same thing? Based on press coverage, not likely.
UPDATE: Well, both Chrysler and GM did file in NYC. For the basic info about GM's filing, click here.
