Post-Bankruptcy GM, What the Plan Entails

[nsap]

Post-Bankruptcy GM, What the Plan Entails
GMI sources give us insight into the bankruptcy plan, GM debt details.
www.gminsidenews.com
April 14, 2009
By: Nsap

Recently there have been many speculation pieces regarding what may or may not happen to General Motors if and when the company has to file for Chapter 11 bankruptcy protection. At the current time, there is no certainty of a bankruptcy filing by GM. The new offer to the unsecured bondholders has not been formally presented to them yet, that is slated to happen this Wednesday when the Auto Task Force and GM officials meet with representatives of the bondholders. That outcome of this most recent bondholder offer is likely going to be the ominous sign of the future of General Motors. If accepted, an out-of-court restructuring may just be possible yet. If the bondholders refuse (again), a Chapter 11 filing will be following shortly. GMI sources have informed us of what the current bankruptcy plans entail after the filing has been made. We feel like it is imperative to clarify what the current plans are.

Reports are correct that, if bankruptcy is filed, General Motors will seek a “363” deal in court. Such a deal has the company split into two portions; one comprised of the “good” assets (let’s call it GoodGM for ease) and one filled with the “bad” assets (call it BadGM). During the proceedings, BadGM would be given over to the holders of GM’s debt to be liquidated to raise money to pay off former GM’s debt. Note that GM has approximately $29 Billion in debt; $7 Billion of which is secured by Saturn assets (including Spring Hill, TN plant). The government’s $13.4 Billion loan to GM is also considered secured debt, with a vast amount of assets up as collateral.


GoodGM would reemerge fairly quickly from the bankruptcy process (if everything goes to plan). The U.S. government would release GM, GoodGM and BadGM of the $13.4 Billion in debt, but as a trade-off take a 100% ownership in GoodGM upon reemergence. Shortly after the new company emerges from bankruptcy, the U.S. government (currently the owner of GoodGM) would issue an initial public offering (IPO) on the new company and it would become a public company much like the current General Motors, though the current GM stock would be canceled in bankruptcy. Most of the money raised from the investment of the new company would likely go to the VEBA fund for the UAW.

A Look at GM's Debt

Itemized:

• Unsecured debt: $29 Billion (this is the amount that is taking hold in tomorrow's bondholder meetings)
  
• Debt to U.S. government (considered secured by assets): $13.4 Billion
  
• Secured (non-government) debt: $7 Billion (this is all secured by Saturn and the Spring Hill, TN assembly plant)
  
• UAW VEBA Obligations: $48 Billion (considered unsecured debt)

Total Debt: $97 Billion (including VEBA obligations)
Total Debt (without VEBA): $49 Billion

The above is a very general view of what the bankruptcy plan for General Motors is shaping up to look like. Some will argue against the plan, but GMI sent the above off to our sources for verification prior to publication and in the past they have been spot on. Tomorrow's bondholder meeting is likely to shed light on whether or not bankruptcy is the only answer. Stay tuned to GMI for the latest out of tomorrow's bondholder meetings, because we're certain our sources will have some information for us.

[ejfx]

Thanks nsap for these details...

100% Government ownership scares me...
Although, maybe they will realise how restrictive the cafe standards are while building thier Secret Service Suburbans...will they break the rules?

[nsap]

Originally Posted by ejfx

Thanks nsap for these details...

100% Government ownership scares me...
Although, maybe they will realise how restrictive the cafe standards are while building thier Secret Service Suburbans...will they break the rules?

Please note that the government ownership would be very short. Just from bankruptcy to the IPO...which would not be a long period of time.

[nadepalma]

Good insight nsap!

Originally Posted by nsap

GoodGM would reemerge fairly quickly from the bankruptcy process (if everything goes to plan). The U.S. government would release GM, GoodGM and BadGM of the $13.4 Billion in debt, but as a trade-off take a 100% ownership in GoodGM upon reemergence. Shortly after the new company emerges from bankruptcy, the U.S. government (currently the owner of GoodGM) would issue an initial public offering (IPO) on the new company and it would become a public company much like the current General Motors, though the current GM stock would be canceled in bankruptcy. Most of the money raised from the investment of the new company would likely go to the VEBA fund for the UAW.

A scary thought to think of GM being 100% owned by the US Government - but I suppose its a necessary evil to get through this crisis?

I wonder how much of the company the UAW will have after it is spun off?

I also wonder if the excessive dealership count will be addressed in any restructuring as well as who will administer the BadGM?

If I were GM, I'd also start thinking of a new name in the process. They could arguably keep the initials and become "Global Motors" or something if they had to. But any bankruptcy - including a quick one - may hamper their image. Still, despite the bad image, it would be quite sad to see GM's fabled history and legacy tarned and killed altogether any any bankruptcy proceedings.

[davidlane]

The ATF has figured out a way to wipe out the share holders and bond holders while making the union whole. Politics at it's finest, a huge payoff for the union support and votes the administration received.

[PhishPhood]

Originally Posted by nadepalma

Good insight nsap!

A scary thought to think of GM being 100% owned by the US Government - but I suppose its a necessary evil to get through this crisis?

I wonder how much of the company the UAW will have after it is spun off?

I also wonder if the excessive dealership count will be addressed in any restructuring as well as who will administer the BadGM?

If I were GM, I'd also start thinking of a new name in the process. They could arguably keep the initials and become "Global Motors" or something if they had to. But any bankruptcy - including a quick one - may hamper their image. Still, despite the bad image, it would be quite sad to see GM's fabled history and legacy tarned and killed altogether any any bankruptcy proceedings.

Consider if the new GoodGM consists only of Chevy and Caddy then the only dealers likely to be associated with the new healthy ongoing concern would be the retailers of these two brands. The rationalization of these two brands would be a lot easier than having to deal with these two plus BPG, Saturn, Hummer, Saab. These latter four unfortunately will likely wither away in BK court or be sold off to other new owners.

[benroethig]

I think this is the only way for a viable GM. The situation now we have Chevrolet selling about 75% of GM's vehicles but the other divisions have most of the debt.

[benroethig]

Originally Posted by PhishPhood

Consider if the new GoodGM consists only of Chevy and Caddy then the only dealers likely to be associated with the new healthy ongoing concern would be the retailers of these two brands. The rationalization of these two brands would be a lot easier than having to deal with these two plus BPG, Saturn, Hummer, Saab. These latter four unfortunately will likely wither away in BK court or be sold off to other new owners.

I would see BPG and Saturn both ending up in Chinese hands. It would be interesting to see what, if any, plants go with them.

[PhishPhood]

Originally Posted by davidlane

The ATF has figured out a way to wipe out the share holders and bond holders while making the union whole. Politics at it's finest, a huge payoff for the union support and votes the administration received.

The shareholders were always dead men walking.

The bondholders have been holding up the process and in fact are just sharks. If the sharks breakeven scrounging up the chum left over then 'Oh well'. If they make a little profit then good for them.

Actually you're ignoring the pain of a whole segment of 'the workers'. The workers at the surviving brands are saved mostly, but not if they happen to be working for BPG, Hummer or Saturn. Also a goodly number of white collar workers and engineers and designers will not be needed if the new GoodGM is 50% smaller than it is today.

Maybe giving this a broadstroke brush of 'politics at its finest' is far too simplistic.

[Zbad1]

100% government owned. During that time it really will be your patriotic duty to buy GM. I think that everybody in the top tax bracket should get a free Malibu with their return.

[nadepalma]

Originally Posted by PhishPhood

Consider if the new GoodGM consists only of Chevy and Caddy then the only dealers likely to be associated with the new healthy ongoing concern would be the retailers of these two brands. The rationalization of these two brands would be a lot easier than having to deal with these two plus BPG, Saturn, Hummer, Saab. These latter four unfortunately will likely wither away in BK court or be sold off to other new owners.

True, but everything we have heard thus far says that Buick is on the "safe list" and no final determination has been made for GMC or Pontiac.

However, even if we were to just stick it out with Caddy and Chevy only - and the rest gets sent to the "BadGM" - we would still have to handle an excessive dealership count. I don't remember the numbers off the top of my head, but I want to say that there were nearly 3,000 Chevy stores and almost 1,400 Caddy stores. That's still way too large a number of Chevy and Caddy stores compared to what they actually sell.

And you know that task force will continue to put up Toyota/Lexus numbers for comparison -- Roughly 1500 Toyota stores, 400 Lexus stoers -- as a "model" of what GM needs to do with their own franchisees.

Additionally, you have to consider franchises that may carry what's left of the "GoodGM" but also carry "BadGM" brands as well -- like a Caddy/Buick/Pontiac store, etc. Will they turn around and sue GM if those other brands disapper?

IDK - I think this could get very messy in the end, but if should try to address all of this while they are in bankruptcy or they may end up paying out more in the long-run.

[awalbert88]

So, the bondholders get BadGM to liquidate. That means China will be producing cars for sale in the US, as they are probably the only ones who want anything to do with those assets. Damaged or not, those brands would still get them in the door.

I think this plan is the best shot we have for seeing Chevrolet and Cadillac survive. I really hope Buick is part of the surviving company, though.

[davidlane]

Originally Posted by PhishPhood

The shareholders were always dead men walking.

The bondholders have been holding up the process and in fact are just sharks. If the sharks breakeven scrounging up the chum left over then 'Oh well'. If they make a little profit then good for them.

Actually you're ignoring the pain of a whole segment of 'the workers'. The workers at the surviving brands are saved mostly, but not if they happen to be working for BPG, Hummer or Saturn. Also a goodly number of white collar workers and engineers and designers will not be needed if the new GoodGM is 50% smaller than it is today.

Maybe giving this a broadstroke brush of 'politics at its finest' is far too simplistic.

Given that the alternative was probably no GM, I don't believe so. And there's really no guarantee this will work as advertised. Given there is culpability enough for GM and the UAW in crating this train wreck. I have no problem with the shared job sacrifices. However, to pick the one player that appears to have been least willing to negotiate over a long period of time and bail them out, apparently totally, smacks of political payback to me. Particularly, when legacy costs 5-6 years out was one of the reasons the ATF rejected GM's recent plan submission. I don't believe I will be the only one that sees it this way.

[davidlane]

Originally Posted by Zbad1

100% government owned. During that time it really will be your patriotic duty to buy GM. I think that everybody in the top tax bracket should get a free Malibu with their return.

Or depending on your view of what the government, as defined in the Constitution, is supposed to do it is just as easy to support the position that the only patriotic thing to do is not buy GM. Actually given the way Ford has handled their financial problems it would be easy to make the case they are the patriotic choice to buy from. So far, they've done it the American way, no government bailout!

[nsap]

Originally Posted by awalbert88

So, the bondholders get BadGM to liquidate. That means China will be producing cars for sale in the US, as they are probably the only ones who want anything to do with those assets. Damaged or not, those brands would still get them in the door.

I think this plan is the best shot we have for seeing Chevrolet and Cadillac survive. I really hope Buick is part of the surviving company, though.

The current plan calls for only the Hummer, Saturn and Saab brands to be liquidated. GMC and Pontiac could be terminated during bankruptcy, but it will ultimately depend upon what GM management and the ATF feels is best. So the Chinese have the same chances with or without BK.

Cadillac, Chevrolet and Buick have very good chances of surviving BK. GMC has good odds as well, just not like the other three.