GM may need $30B and bankruptcy to survive.
12-15-2008, 03:44 PM
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GM may need $30B and bankruptcy to survive.
GM may need $30 billion government loan to survive: BofA
NEW YORK (Reuters) – The U.S. government may need to lend General Motors Corp (GM.N) around $30 billion to help the automaker operate through a bankruptcy, or risk a systemic chain of failures in the auto industry, Bank of America said.
The Bush administration said on Friday it could be willing to provide emergency aid to the teetering U.S. auto industry, keeping open the prospects for a bailout the day after Congress failed to approve a deal.
Warning of dire consequences for the recession-hit U.S. economy if the once-mighty automakers collapsed, the White House -- in a reversal of policy -- said it was ready to consider dipping into a $700 billion Wall Street bailout fund to help keep the companies afloat.
GM may need around $30 billion in debtor-in-possession loans, which are used to pay for a company's operating expenses as it restructures under bankruptcy protection, Bank of America analysts said in a report issued late on Friday.
The $30 billion represents around two times GM's working capital, with an additional $10 billion cushion for further earnings hits and to fund suppliers, the bank said.
GM had $36 billion in long-term debt as of September 30, according to a regulatory filing.
To support GM, and the industry, the government will need to lend funds to support the company in bankruptcy rather than out of bankruptcy, as that is the only way to ensure the government has the most senior claim on the automaker's assets, the bank added.
"The alternative to attempt to legislate a senior position for the government outside of bankruptcy, as appeared in earlier versions of the auto bailout legislation, represents a violation of contract law, a dangerous precedent that all government interventions to date have sought to avoid," the bank said.
Bank of America suggests that the money from the Troubled Asset Relief Program, or TARP, could be combined with funds from section 13 of the Federal Reserve Act, which allows the Fed to lend to companies on a secured basis under "unusual and exigent conditions."
"With the DIP in place to allow fundamental cost restructuring, restoring the long-term viability of GM could mean a longer payback of government funds over a 5-10 year period and perhaps sooner through a sale or refinancing," the bank added.
SYSTEMIC RISKS
If GM fails to get funding and is forced to liquidate, it would have systemic consequences, dragging down suppliers and potentially other automakers with it, Bank of America said.
American Axle & Manufacturing Holdings (AXL.N) makes most of its sales to GM and is most exposed to a GM failure, the bank said.
If a company like Lear Corp (LEA.N), which supplies GM and Ford Motor Co (F.N), is hurt by a GM failure it could also inhibit its ability to supply Ford, which in turn could also hurt Ford's major supplier, Visteon Corp (VC.N), the report said.
"The systemic risk argument of a set of cascading payment defaults is borne out in the close linkages between suppliers and manufacturers," Bank of America said.
"Debtor-In-Possession financing helps to forestall such a systemic risk outcome by allowing companies to continue to operate, and in this case, to continue to make payments to their suppliers, and avoid such an event," the bank added.
(Reporting by Karen Brettell; Editing by Dan Grebler)
NEW YORK (Reuters) – The U.S. government may need to lend General Motors Corp (GM.N) around $30 billion to help the automaker operate through a bankruptcy, or risk a systemic chain of failures in the auto industry, Bank of America said.
The Bush administration said on Friday it could be willing to provide emergency aid to the teetering U.S. auto industry, keeping open the prospects for a bailout the day after Congress failed to approve a deal.
Warning of dire consequences for the recession-hit U.S. economy if the once-mighty automakers collapsed, the White House -- in a reversal of policy -- said it was ready to consider dipping into a $700 billion Wall Street bailout fund to help keep the companies afloat.
GM may need around $30 billion in debtor-in-possession loans, which are used to pay for a company's operating expenses as it restructures under bankruptcy protection, Bank of America analysts said in a report issued late on Friday.
The $30 billion represents around two times GM's working capital, with an additional $10 billion cushion for further earnings hits and to fund suppliers, the bank said.
GM had $36 billion in long-term debt as of September 30, according to a regulatory filing.
To support GM, and the industry, the government will need to lend funds to support the company in bankruptcy rather than out of bankruptcy, as that is the only way to ensure the government has the most senior claim on the automaker's assets, the bank added.
"The alternative to attempt to legislate a senior position for the government outside of bankruptcy, as appeared in earlier versions of the auto bailout legislation, represents a violation of contract law, a dangerous precedent that all government interventions to date have sought to avoid," the bank said.
Bank of America suggests that the money from the Troubled Asset Relief Program, or TARP, could be combined with funds from section 13 of the Federal Reserve Act, which allows the Fed to lend to companies on a secured basis under "unusual and exigent conditions."
"With the DIP in place to allow fundamental cost restructuring, restoring the long-term viability of GM could mean a longer payback of government funds over a 5-10 year period and perhaps sooner through a sale or refinancing," the bank added.
SYSTEMIC RISKS
If GM fails to get funding and is forced to liquidate, it would have systemic consequences, dragging down suppliers and potentially other automakers with it, Bank of America said.
American Axle & Manufacturing Holdings (AXL.N) makes most of its sales to GM and is most exposed to a GM failure, the bank said.
If a company like Lear Corp (LEA.N), which supplies GM and Ford Motor Co (F.N), is hurt by a GM failure it could also inhibit its ability to supply Ford, which in turn could also hurt Ford's major supplier, Visteon Corp (VC.N), the report said.
"The systemic risk argument of a set of cascading payment defaults is borne out in the close linkages between suppliers and manufacturers," Bank of America said.
"Debtor-In-Possession financing helps to forestall such a systemic risk outcome by allowing companies to continue to operate, and in this case, to continue to make payments to their suppliers, and avoid such an event," the bank added.
(Reporting by Karen Brettell; Editing by Dan Grebler)
12-15-2008, 04:10 PM
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You know guys, I just can't see how a simple "bridge loan" to get GM through the next few months will save it.
I really think it's going to take some sort of feds as DIP chapter 11, for GM to restructure as a profitable company.
I'm no expert though....
I really think it's going to take some sort of feds as DIP chapter 11, for GM to restructure as a profitable company.
I'm no expert though....
12-15-2008, 04:49 PM
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12-15-2008, 04:54 PM
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These numbers seem more plausible to actually address and fix the company. Restructuring and maybe closing dealers and cutting brands will take investment. So will the VEBA obligations. I thought GM went a little light with their $18 billion request to Congress. This is one of those times when they should have put it all on the line and stated what they need because not getting enough and then trying to go back and ask for more only looks to prove the allegations that they don't know what they are doing.
The financial institutions certainly didn't hold back on what they needed regardless of how outrageous the numbers. But what it included was a sense that the problem would be fixed and they wouldn't need to come back.
As for the bridge loan; It didn't fix the problem and I think that's why it failed in the Senate. It's obvious that the Bush administration doesn't want them to fail but doesn't want to get in deep on this either so give them enough cash to survive until the new Congress can tackle the problem.
I'm still just amazed that after more than 100 years in business where going bankrupt wasn't even a thought the timing falls just right that they can't survive a mere months until a new Congress and President come into office to help them. It's like an old man dieing on the steps of the hospital.
The financial institutions certainly didn't hold back on what they needed regardless of how outrageous the numbers. But what it included was a sense that the problem would be fixed and they wouldn't need to come back.
As for the bridge loan; It didn't fix the problem and I think that's why it failed in the Senate. It's obvious that the Bush administration doesn't want them to fail but doesn't want to get in deep on this either so give them enough cash to survive until the new Congress can tackle the problem.
I'm still just amazed that after more than 100 years in business where going bankrupt wasn't even a thought the timing falls just right that they can't survive a mere months until a new Congress and President come into office to help them. It's like an old man dieing on the steps of the hospital.
12-15-2008, 05:19 PM
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GM's problem is not an issue of liquidity (like Chrysler in the 80s) - GM is flat-out f*ckin' broke.
Either GM needs a lot of help giving "haircuts" to its debtors and a big chunk of cash to help it maintain liquidity through the transition, or else the federal government needs to cut a check for something in the neighborhood of $100-125B. I laid out what I think has to happen in an older post:
https://www.camaroz28.com/forums/sho...43&postcount=6
Frankly, I think that GM has to be allowed to go through some sort of government-backed Chapter 11, and if the company is strong enough to survive that process, then it can probably thrive in the marketplace upon its re-emergence. The government "backstop" for suppliers, bondholders, and retirees is something that I don't like one bit, but I think it's necessary to prevent damage to any surviving car companies (i.e. Ford) and to avoid a tremendous ripple effect from tearing through the US economy.
12-15-2008, 05:24 PM
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I'm still just amazed that after more than 100 years in business where going bankrupt wasn't even a thought the timing falls just right that they can't survive a mere months until a new Congress and President come into office to help them. It's like an old man dieing on the steps of the hospital.
The company was lying down in its deathbed in July, but Wagoner stated that all was well. In 2005, it was clear that the company was in serious pain and wouldn't survive without a drastic restructuring. The pension problems in 2001-2002 should have been a huge warning sign. You can go all the way back to the near-bankruptcy in 1992, read what problems were identified with the company back then, and see that the exact same problems exist 16 years later.
12-15-2008, 05:34 PM
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The fact that numbers on this go up on a daily basis is a testament to the fact that they are still not being transparent with the gravity of their situation and that chapter 11 is the only chance they have - even though the chances of them dodging chapter 7 soon after are slim to none.
12-15-2008, 05:57 PM
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Yep, I've been for the bailout for some time now but I too am conflicted... I want the gov to help in order to save all of this but I question the outcome...
1.) On one hand, I see the restructuring they did to become profitable and can see where it was working until the economy toileted.
2.) On the other hand, I see GM not asking for enough, flying in Jets to meetings, no other real plan in sight and a cockyness with an attitude of that "It's owed to them"
I just feel dirty when I defend them in needing money when I know it's not going to really fix anything other than postpone the inevidable...
1.) On one hand, I see the restructuring they did to become profitable and can see where it was working until the economy toileted.
2.) On the other hand, I see GM not asking for enough, flying in Jets to meetings, no other real plan in sight and a cockyness with an attitude of that "It's owed to them"
I just feel dirty when I defend them in needing money when I know it's not going to really fix anything other than postpone the inevidable...
12-15-2008, 06:28 PM
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But GM seems to think that BK will be a deterrent to potential customers of GM? Whenever you have a bank report their version of the 'facts', it's gonna be different to the automaker's version of what it takes to survive. The bank looks at getting its money back while the automaker looks to survey the crowd to see if BK is in fact a viable outcome for all parties.
12-15-2008, 06:39 PM
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12-15-2008, 06:42 PM
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SSBaby,
You are so right.
Look at the following statement from Bank of America:
This one paragraph is the heart of the article. The only thing the banks are concerned about is getting their money back. They don't like the idea of the gov. being able to cut ahead in line. They don't like the idea of the gov. telling them they are no longer 1st in line.They feel that it would cause "a dangerous precedent". That's why Bank of America put out these statements.
This is just the banks trying to protect themselves and justifying it while they try.
You are so right.
Look at the following statement from Bank of America:
Originally Posted by Bank of America
"The alternative to attempt to legislate a senior position for the government outside of bankruptcy, as appeared in earlier versions of the auto bailout legislation, represents a violation of contract law, a dangerous precedent that all government interventions to date have sought to avoid," the bank said.
This is just the banks trying to protect themselves and justifying it while they try.
12-15-2008, 06:46 PM
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This didn't just happen in the past two months The company was lying down in its deathbed in July, but Wagoner stated that all was well. In 2005, it was clear that the company was in serious pain and wouldn't survive without a drastic restructuring. The pension problems in 2001-2002 should have been a huge warning sign. You can go all the way back to the near-bankruptcy in 1992, read what problems were identified with the company back then, and see that the exact same problems exist 16 years later.
The company was lying down in its deathbed in July, but Wagoner stated that all was well. In 2005, it was clear that the company was in serious pain and wouldn't survive without a drastic restructuring. The pension problems in 2001-2002 should have been a huge warning sign. You can go all the way back to the near-bankruptcy in 1992, read what problems were identified with the company back then, and see that the exact same problems exist 16 years later.1992 is a great example as while they had huge losses and certainly bankruptcy was being thrown around, but if someone had said to them all you have to do is survive until Clinton took office in 1/93. That wouldn't have been a problem at all.
12-15-2008, 06:50 PM
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This is what makes me mad. Its not like this snuck up on anyone. I remember talking about restructuring GM 7 years ago when I first started coming around this board. I even did a school project in College about restructuring GM.
I just dont understand how the powers at be let it get to this point. Seems like we never got away from product overlap and ridicules bureaucracy.