The Obama Administration’s plan for the automakers, specifically General Motors, took an interesting little twist yesterday. The President’s Auto Task Force hired Wilkie, Farr & Gallagher partner Matthew Feldman, a prominent bankruptcy lawyer. He joins Quadrangle Group co-founder Steve Rattner and former U.S. Steelworkers advisor Ron Bloom. The three of them now have the job of writing a plan along with Treasury and other members of the Administration to restructure and save GM, Chrysler and maybe Ford should the company keep burning cash and also eventually require federal loans.
Feldman’s hire is most interesting. The Administration has demurred from talk of letting any of the car companies go into Chapter 11 bankrtupcy. And GM management remains staunchly opposed, fearing that buyers would flee and revenue would fall so fast that the company couldn’t restructure quicky enough to avoid liquidation.
But it’s looking a bit more like the Administration is open to considering the idea of some kind of expedited government-sponsored bankruptcy. Why else would they hire a bankrupty attorney? Plus, certain members of the task force think GM is carrying too much debt. That’s important to note. Even though GM is negotiating with bondholders to cut $27.5 billion in unsecured debt down to $9 billion, the company will still have more than $60 billion in debt when all is done. See, GM wants to negotiate away almost $20 billion in bond debt and $10 billion in union obligations, but replace it dollar for dollar with government loans. That would leave GM with the same debt load it carried when management first asked for government help.
If the Task Force deccides in the end that even the current restructuring plan leaves GM with too much debt to really compete, they could look at bankrupty as a real option. Also, if the car market gets even worse, GM and Chrysler’s financial performance could push the companies even closer to bankruptcy. We may see on March 31, when the task force is slated to pass its wand on the restrucuting plans submitted last month.