GM Reorganization Continues

Posted: July 9, 2009

General Motors' bankruptcy reorganization continues, and some reports indicate it could be over soon.

AFP reports, "General Motors could exit bankruptcy protection very soon by selling its best assets to a new, leaner company in which the US government will hold a majority stake."

Still, the new GM won't be as lean as it could be. Bloomberg says the new GM " will carry with it liabilities of $48.4 billion, a bankruptcy judge said," and adds "The new GM agreed to take on those obligations to benefit creditors, U.S. Bankruptcy Judge Robert Gerber in New York said in a ruling on July 7 that denied a quick appeal to opponents of the sale. The debt will be offset by GM's most competitive assets, such as Cadillac, Chevrolet, Buick and GMC."

Bondholders will also be getting a larger stake in the new GM, according to the Wall Street Journal, which reports "unsecured bondholders stand to get an additional 2% of equity in the post-bankruptcy GM in the event that unsecured claims against the auto maker exceed $35 billion, the company said in a regulatory filing Wednesday. The equity would be in addition to a 10% share in the new GM promised to bondholders along with warrants for an another 15%."

The maneuvers allow the bankruptcy reorganization to continue quickly. Changes to the bankruptcy filing have even please states' attorneys general, who had objected to much of the bankruptcy plan on the grounds that it left consumers unprotected. The Wichita Business Journal reports, " Various state attorneys general, annoyed by the initial General Motors Corp. bankruptcy agreements, are welcoming subsequent revisions that require the automaker to uphold product liability claims and state lemon laws post-bankruptcy."

The Wall Street Journal says, "A bankruptcy judge approved a sale of GM's profitable assets Sunday to a new GM, leaving the money-losing parts of the business to be liquidated." The new GM, Bloomberg explains, is "a U.S. Treasury-funded buyer and said the company could complete the deal any time after today at noon. The Treasury has set a July 10 deadline for the sale."

The less profitable assets of GM, according to the Wall Street Journal, will go into a company called "Old Co." Old Co. assets will be sold to pay GM's debts. The Wall Street Journal notes, "GM has no estimate of how much in claims may eventually be filed against the old company. In discarding unwanted assets, the company is leaving behind many old factories that could pose environmental issues as well as lawsuits from numerous groups and individuals, from accident victims to asbestos-related claims." According to the Wall Street Journal, the process of liquidating GM's assets " could stretch on for several years."

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