(1888PressRelease)
May 12, 2009 - For General Motors Corp., the task at hand is so difficult that Morgan Singleton Associates President says “A Chapter 11 bankruptcy filing is all but inevitable.”
To remake itself outside of court, GM must persuade bondholders to swap $27 billion in debt for 10 percent of its risky stock. On top of that, the automaker must work out deals with its union, announce factory closures, cut or sell brands and force hundreds of dealers out of business, all in three weeks.
"I just don't see how it's possible, given all of the pieces," said Katherine Davies, President at Morgan Singleton Associates in Seattle.
GM, which is living on $15.4 billion in federal aid, faces a June 1 government deadline to complete its restructuring plan. If it can't finish in time, the company will follow Detroit competitor Chrysler LLC into bankruptcy protection.
Although company executives said last week they would still prefer to restructure out of court, experts say all GM is doing now is lining up majorities of stakeholders to make its court-supervised reorganization move more quickly.
"If we need to pursue bankruptcy, we will make sure that we do it in an expeditious fashion. The exact strategies I'm not getting into today, but we'll be ready to go if that's required," CEO Fritz Henderson said last week.
The threat of bankruptcy, however, may be just a negotiating ploy to pull reluctant bondholders into the equity swap deal. In Chrysler's case, some secured debtholders resisted taking roughly 30 cents on the dollar for what they were owed, but most gave in after they were identified in court documents.
Henderson, who took over in March when the government ousted Rick Wagoner, said last week there's still time to get everything done by the deadline, although he conceded it will be difficult to meet a government requirement that 90 percent of its thousands of bondholders agree to the stock swap.
The biggest obstacle to GM restructuring out of court appears to be its bondholders, who have been reluctant to sign on to the stock swap when the government and United Auto Workers union would get far more stock in exchange for debts owed by GM.
GM has proposed issuing 62 billion new shares, 100 times more than the 611 million now offered publicly.
Even though the U.S. government has agreed to back up GM and Chrysler new-car warranties, potential car buyers already view GM as if it's in bankruptcy, reflected by the company's step revenue drop in the latest quarter. On Thursday, GM posted a $6 billion first-quarter loss and said its revenue dropped plunged by nearly half, largely because bankruptcy fears scared customers away from showrooms.
"I don't think anyone is buying cars from a company who is wringing their hands about a potential bankruptcy for the past year or so," said the Morgan Singleton Associates President.
Under Chapter 11, a company can stay in operation under court protection while sheds debts and unprofitable assets to emerge in a stronger financial position.
At this point, GM needs to resolve the uncertainty and get in and out of bankruptcy as quickly as possible, Lubben said.
The company is talking with the UAW and Canadian auto workers unions about concessions, including getting the UAW to take roughly 39 percent of its stock in exchange for half of the $20 billion GM must pay into a union-run trust that will take over retiree health care payments next year.
About 50 percent of the stock would go to the government for its loans. GM said last week it would need another $2.6 billion in May and $9 billion more for the rest of the year, bringing the total to $27 billion.
One percent would go to current shareholders, with bondholders getting the other 10 percent.
“Bondholders are reluctant to take the deal because the government and UAW are getting far bigger stakes in the company,” Davies said. She went on to say "When you look across at what the union is getting and what the government is getting, to expect them to take 10 percent is just unrealistic."
Cutting dealers also remains a huge hurdle, with GM hoping to shed 2,600 of its 6,246 dealerships by 2010.
Morgan Singleton Associates are highly respected within the financial community and have been providing accurate evaluations for over three decades. Working alongside Industry leaders Morgan Singleton Associates recognizes the dramatic need for major changes, with a passionate commitment to business growth. Morgan Singleton Associates provides a full range of integrated services and products simultaneously directed at producing strategically predetermined business and cultural results. We bring together a broad range of talent and resources with a passion for integrity, continuous improvement and the desire to make a difference. This results in prosperity for our customers, society and ourselves.
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