general motors bankruptcy

general motors bankruptcy
General Motors Corp., the world’s largest carmaker until its 77-year reign ended last year, filed for bankruptcy protection in the U.S. with a plan to create a 21st-century company that can compete in world markets.
GM reported $82.3 billion in assets and $172.8 billion in debt. The U.S. government will bankroll the transformation of the 100-year-old automaker, a victim of tumbling sales and higher gas prices. The U.S. plans to convert much of its $50 billion of loans to a 60 percent stake in the new entity. Today’s filing in New York coincides with a deadline for GM to convince a government auto task force that it could reorganize out of court through debt and cost cutting.
“It’s been a long time coming, but the reality of a GM bankruptcy is still a bitter pill to swallow -- it’s a bit like the Titanic sinking,” said Stephen Pope, chief global strategist at Cantor Fitzgerald in London. “This is a step they should have taken more than a year ago, which could have put them in much better shape before the economy went down.”
Detroit-based GM is the largest manufacturer to file for bankruptcy, surpassing Chrysler LLC. The carmaker plans to launch a new company in 60 to 90 days, armed with vehicles from its Cadillac, Chevrolet, Buick and GMC units for the U.S. market. The federal bankruptcy court will supervise the sale or liquidation of unprofitable brands, such as Saturn and Hummer, and at least 11 unwanted factories.
Lyondell Judge
GM said it has more than 100,000 creditors and that unsecured creditors will recover some assets in the reorganization, according to the filing. Company operations outside the U.S. weren’t included in the petition.
The case was assigned to U.S. Bankruptcy Judge Robert Gerber in Manhattan, who also presides over the bankruptcies of Lyondell Chemical Co. and BearingPoint Inc. He presided over the bankruptcy of Adelphia Communications Corp. as well.
“Today marks a defining moment in the reinvention of GM,” said company President and Chief Executive Officer Fritz Henderson. “The economic crisis has caused enormous disruption in the auto industry.”
GM listed in its petition as top creditors Wilmington Trust Co., representing bondholders owed $22.8 billion; International Union, the United Automobile, Aerospace and Agricultural Implement Workers of America, owed $20.6 billion; and Deutsche Bank AG, owed $4.44 billion. The Unofficial GM Dealers Committee, which said it represents more than 6,000 GM dealers in the U.S., filed a notice that it will take part in the bankruptcy litigation.
GM Facility
One idle GM facility in the U.S. will be retooled to make small, fuel-efficient cars as part of an agreement with union workers, GM said May 29.
GM’s Saab unit is reorganizing in Sweden. The German government picked Magna International Inc., a Canadian car-parts maker, to buy GM’s Opel unit.
The GM Chapter 11 petition filed today in the U.S. Bankruptcy Court for the Southern District of New York makes the carmaker the third-largest bankruptcy in U.S. history, ranked by total assets, after Lehman Brothers Holdings Inc. and WorldCom Inc. Chrysler’s April 30 filing listed $39 billion in assets.
Washington Mutual Inc. filed for bankruptcy in September claiming assets including bank operations seized by U.S. regulators prior to its seeking court protection. With those assets included, it would be the second-largest bankruptcy and GM would be ranked fourth.
Chrysler Bankruptcy
Auburn Hills, Michigan-based Chrysler plans to transfer most of its assets to a new entity that would be run by Italy’s Fiat SpA. Another federal bankruptcy judge in New York approved the deal last night.
Before declaring bankruptcy, GM got $19.8 billion in U.S. Treasury loans. Administration officials said yesterday it would advance $30 billion more, with another $9.5 billion from the Canadian government. A balance sheet in a GM securities filing last week showed total debt in the new GM of $17 billion, excluding obligations to suppliers and warranty programs and including $8 billion in Treasury loans.
The filing put the new-entity loan total from the U.S. and Canadian government at almost $60 billion.
Aside from the U.S. government’s equity share, GM’s pre- filing plan called for a worker health-care fund to get a 17.5 percent stake. Bondholders would get 10 percent and warrants to buy another 15 percent.
Initial Trading
There would be no initial public trading of the shares, some of which will be given to the Canadian government in exchange for loans, an administration official said last week. The company might remain private for as long as 18 months, the official said, asking not to be identified.
GM, being larger than Chrysler, faces more obstacles in mopping up the creditor claims that remain in bankruptcy after the streamlined company is created. GM, reeling from almost $88 billion in losses since 2004, might not return to profitability if U.S. vehicle sales are below 10 million a year, the amount the administration said the new GM will need to break even.
“Any suggestion that an American corporate icon like GM could file for bankruptcy would have been laughable a few years ago,” said Lynn Hiestand, a lawyer specializing in restructuring with Skadden, Arps, Slate, Meagher & Flom LLP.
Starcom MediaVest
Starcom MediaVest Group, GM’s largest trade creditor, is owed $121.5 million, according to the filing. GM said in its filing that it owed former unit Delphi Corp. $110.9 million. Other key parts suppliers such as Robert Bosch GmbH, owed $66.2 million, Lear Corp., owed $44.8 million, and Johnson Controls Inc., with a $32.8 million claim, were among the automaker’s top dozen creditors.
Magna International Inc., a Canadian car-parts maker leading a group that is expected to buy GM’s Opel unit, was owed $26.7 million, according to court papers.
The GM board said in the filing that an asset sale to the U.S. Treasury is “expedient.” Auto Acquisition Corp. is the government entity that will own GM assets, according to the filing. The U.S. and Canada may provide the company with as much as $65 billion in bankruptcy loans, the GM board said, according to the petition
Government Funding
Of the government funding, “approximately” $30.1 billion in new money will be advanced by the U.S. Treasury on top of an estimated $19.8 billion provided already, with $9.5 billion coming from the governments of Canada and the province of Ontario, administration officials said yesterday.
GM said in the bankruptcy filing that it has no objections to a bankruptcy by its Canadian unit. The company has $22 billion in bond debt and $20.6 billion in UAW obligations, according to court papers.
GM’s Saturn LLC and Saturn Distribution Corp. also sought court protection today. The Chapter 11 petitions are the “only opportunity for preserving” the Saturn brand, according to the filing. Saturn’s board approved the sale of its assets to the U.S. Treasury, according to a court filing.
Today’s filing will trigger credit-default swaps protecting about $3.1 billion of GM debt, in the biggest settlement of the derivatives since September’s collapse of Lehman Brothers. Pricing reflected the risks last week as dealers charged about $8.7 million upfront and $500,000 annually to protect $10 million of debt.
Global Liabilities
GM had global liabilities of $176.4 billion as of Dec. 31, 2008. Banks such as JPMorgan Chase & Co. secured GM’s revolving loan of about $4.5 billion with inventory, receivables and factories, also providing a $1.5 billion term loan. The face value of its bonds was $27 billion.
The automaker has agreed to take ownership of five production facilities from bankrupt parts supplier Delphi, based in Troy, Michigan, according to the UAW. The carmaker will employ all union workers at those locations as part of an accord with the union, according to a union document obtained by Bloomberg. The sites are in Saginaw and Grand Rapids, Michigan; Lockport and Rochester, New York; and Kokomo, Indiana.
GM’s North American sales were $86.2 billion in 2008, compared with $34.4 billion in Europe, $20.3 billion in Latin America, Africa and the Middle East, and $17.8 billion in the Asia Pacific region, according to a regulatory filing.
GM sales dropped 33 percent in April.
William Durant
The automaker was founded in 1908 by William “Billy” Durant, who bought more than 20 car companies before being ousted in a 1920 bailout by Pierre Du Pont and J.P. Morgan.
By the 1960s, GM controlled more than half the U.S. vehicle market. In 2008, it sold only 8.35 million cars worldwide, losing its place as the world’s No.1 automaker to Toyota Motor Corp. as customers opted for the Japanese carmaker’s fuel- efficient Corolla and Camry brands instead of GM’s light trucks and Hummers.
GM’s shares traded at less than a dollar last week after Bloomberg News reported it would file for bankruptcy by today.
Lehman filed the biggest bankruptcy in September, listing assets of $639 billion. WorldCom collapsed in 2002 with assets of $103.9 billion.
GM’s bankruptcy petition was filed by Harvey Miller and Stephen Karotkin of New York law firm Weil Gotshal & Manges LLP, which is also advising Lehman.
‘First Day’ Motions
Following its bankruptcy petition, GM filed “first day” motions seeking Judge Gerber’s permission to spend funds so as to continue business operations while under court protection.
These include honoring obligations to employees and retirees, continuing customer programs including warranties, fulfilling financing agreements and making payments to “essential suppliers and logistics providers,” GM said.
The Chapter 11 proceeding will slash GM’s consolidated debt from $54.4 billion in March to only $17 billion for the new entity, GM said in a statement. The number excludes liabilities such as its obligations to the employee healthcare trust.
“The gravity of the circumstances cannot be overstated,” GM said in court papers. “The business and assets to be transferred are extremely sensitive and will be subject to major value erosion unless they are quickly sold and transferred to New GM.”
The bankruptcy transaction, the automaker said, “furthers public policy by avoiding the fatal damage to the industry that would occur if New GM is unable to immediately commence bankruptcy-free operations.”
The case is In re General Motors Corp., 09-50026, U.S. Bankruptcy Court for the Southern District, New York (Manhattan).