GM in a government-subsidized prepack...

[GrayMatterWife]

Oh, sh*t.

Obama's people are now considering extending to GM...get this...A GOVERNMENT DEBTOR-IN-POSSESSION LOAN SO THAT GM CAN FILE A PREPACKAGED CHAPTER 11 BANKRUPTCY.

("Prepackaged"--or a "prepack"--just means that the terms of the plan of reorganization required for approval by the Court is arranged ahead of the filing for bankruptcy relief.)

I mean, listen to what he wants to do: because GM most likely cannot obtain a debtor-in-possession loan (that is, financing while in BK) and exit financing from PRIVATE LENDERS (institutions that MAKE A LIVING determining whether a loan is worth the risk), the GOVERNMENT will make the loan!!

We, as taxpayers, are being told WE will assume the risk that private lenders won't even touch, even with the protections offered through the bankrutpcy process.

If this is such a great idea, why didn't we do this for the airlines? Or asbestos-laden corporations? Or any other industry? Why not...BECAUSE IT IS A BAD IDEA!!

I can't WAIT for these financial gurus to be in charge of determining how our Social Security is handled...or run the health care system! Don't have the money? No institution that actually must be held accountable to its shareholders won't touch you with a ten-foot pole? Don't fear! The government will lend to you.

:banghead:

[Sheherezade]

Re: GM in a government-subsidized prepack...

I believe that has been suggested by several legislators as well. In fact, that's the take home message I received from the Mitt Romney essay Tara posted in the other thread. Bankruptcy, with the government insuring financing on the other side. If they can't make private banks lend to them, this is the only option to make that happen. How else can they insure they receive financing after declaring bankruptcy (as Romney suggested)?

[Sheherezade]

Re: GM in a government-subsidized prepack...

I think he also suggested (Romney - in the opinion piece) that the government provide guarantees for all warranties. :huh: So...I guess Romney and Obama agree on this?

Personally, I think it is a good plan.

Bank lending continues to be frozen. Those private banks! They've done such a bang up job of deciding about loans in the past, haven't they? Oh...wait. We just gave them 700 billion dollars because they made bad loan decisions. Hmmm.

And we didn't do this for other industries because the LIBOR wasn't at 3.00 - it was at .1 or .2 and we weren't scoring the highest unemployment increases in 16 years....and the DOW had not fallen 50% in a few months time. The situation is vastly different. The rules are different. We can't afford another 3% drop in GDP due to an auto industry failure. Nor the additional 3 million lay offs.

[DCJenn]

Re: GM in a government-subsidized prepack...

Abigail-

Like Angie said, this isn't a new "Obama" plan- it's been suggested for a while- because there's no one else who can play the bank role.

It will be interesting to see how this whole thing plays out.

Jenn

[GrayMatterWife]

Re: GM in a government-subsidized prepack...

Abigail-

Like Angie said, this isn't a new "Obama" plan- it's been suggested for a while- because there's no one else who can play the bank role.

It will be interesting to see how this whole thing plays out.

Jenn

The problem is that he may be endorsing it. I am at a loss as to why these industries would be "entitled" to a loan, anyway. Desperation and unavailability of DIP lending does not mean that the Government now has a responsibility to do this. These conditions should SAY something to the industries--you might not deserve to be an industry. Get a viable turnaround plan together and get someone signed on as a DIP lender, or throw in the towel.

It is not equivalent to the government backing with guarantees. Completely different.

This is a nightmare. Between his health care proposals and this... Where exactly is he going to get the money for all this? More like, who exactly is he going to be taxing to an early death?

[GrayMatterWife]

Re: GM in a government-subsidized prepack...

I think he also suggested (Romney - in the opinion piece) that the government provide guarantees for all warranties. :huh: So...I guess Romney and Obama agree on this?

No. Totally different plans. Guarantees are nothing equivalent to being a DIP lender.

The ONLY way the Government will come out ahead as the DIP Lender is if GM is able to pay back the money on the terms set forth in the plan of reorganization. Which would require a WORKABLE, REALISTIC business turnaround plan. THe airlines were never able to do this. GM won't be able to either unless it massive shrinks its capacities and also improves its marketshare of what it remains in. AND it is able to offload its pension obligations (which would be offloaded to the PGBC--that is, the taxpayers!).

This is just bad business.

[GrayMatterWife]

Re: GM in a government-subsidized prepack...

And we didn't do this for other industries because the LIBOR wasn't at 3.00 - it was at .1 or .2 and we weren't scoring the highest unemployment increases in 16 years....and the DOW had not fallen 50% in a few months time. The situation is vastly different. The rules are different. We can't afford another 3% drop in GDP due to an auto industry failure. Nor the additional 3 million lay offs.

We can afford their failure in the short-term much better than we can afford their subsidization in the long-term.

I am not trying to be harsh. I might have a very different view if these auto makers had a viable plan for a real business turnaround. But there is absolutely nothing to suggest that they would--a big tip is the fact that they can't get a private DIP lender. But this is the definition of a bad investment--horrible projected return--a money suck.

And this won't fix the crappy market, anyway. The rules aren't different--sadly.

[Sheherezade]

Re: GM in a government-subsidized prepack...

I suppose my point was that Romney knows that the Big Three cannot get DIP financing. This has been a repeated point in the debate about the companies. So, when he proposes two days ago that GM be allowed to go bankrupt with the provision that government guarantee DIP financing and warranties during a restructure, what is he suggesting? The only options I see are that the government will 1) make a private bank lend to them 2) give them the money themselves or 3) this is an empty plan that will never actually work with the current facts at hand.

I like Romney and I don't believe he'd offer an empty plan. I was trying to determine if he meant we'd squeeze the lenders (who we now own partially) to lend tot he Big Three or if he was planning a government lending program. :huh:

As a bankruptcy attorney, what other options do you see that would allow the government to guarantee they'd get financing after declaring bankruptcy.

Of course, all this is moot if the companies refuse to declare as they stated before Congress.

Also, in the articles I read Obama's team was negotiating with lenders, etc to arrange the deal. I'm not sure the government funding is their first option. I do think they'd push that if they need to do so. I think they need to have something available to act quickly if nothing happens before Jan 20th. By then, the industry may be in liquidation.

As per another article, Pelosi and Reid are against the bankruptcy/financing plan preferring to pass this additional 25 billion from TARP in December.

ETA: cross posted with you. As to "taxing to an early death" I'm sure there will be significant deficit spending in this administration as we come out of the financial crisis. I didn't hear a lot of people wondering who Bush would be taxing to an early death as he launched his enormous expansion in governement spending. Why? I think it is odd that Democrats are now the ones expected to balance the budget - with Reagan and Bush as our big deficit spenders. Not that I'm against it. It's just a weird switch.

[GrayMatterWife]

Re: GM in a government-subsidized prepack...

I suppose my point was that Romney knows that the Big Three cannot get DIP financing. This has been a repeated point in the debate about the companies. So, when he proposes two days ago that GM be allowed to go bankrupt with the provision that government guarantee DIP financing and warranties during a restructure, what is he suggesting? The only options I see are that the government will 1) make a private bank lend to them 2) give them the money themselves or 3) this is an empty plan that will never actually work with the current facts at hand.

He's right. They should go into BK. (As an aside, I was sort of stunned that he admitted that. Regardless of his business acumen, that must have been a pretty painful thing for him to say, given his deep roots in MI.) I assume he is suggesting that the Gov guarantee the debt of the company so that the company can get private lending. Of course, they wouldn't be able to "make" or force a private lending, but they may be able to make attractive terms (such as guaranteeing). But, honestly, the bankruptcy law provides a lot of attractiveness to DIP lenders, as it is, in terms of protections of DIP loaned money. The only way the Government guarantees would be "assuring" to a DIP lender is if they are genuinely afraid that the case will end up converting into chapter 7 AND there would not be enough assets to cover their outstanding loan amounts pursuant to the priority schedule under the Bankruptcy Code. That would have to be pretty bad...

I think the ONLY way any kind of reorganizational BK would work, in the long term, is MOST dependent not on DIP lending--but on getting a truly workable plan of reorganization. If it becomes clear over the course of the case that this won't come to fruitition, the case will be converted. That's why Obama's backing a "prepack" case--there won't be time to think through the long-term possibilities of the plan.

I like Romney and I don't believe he'd offer an empty plan.

Me, too.

I was trying to determine if he meant we'd squeeze the lenders (who we now own partially) to lend tot he Big Three or if he was planning a government lending program. :huh:

I would be absolutely shocked if Romney suggested that the DIP loans themselves came from the Feds. I mean, I guess he might have, but that is about as un-conservative as it comes and is bad business sense. Both of which run pretty much against his thinking.

As a bankruptcy attorney, what other options do you see that would allow the government to guarantee they'd get financing after declaring bankruptcy.

There are no "options" that would allow the Government to do this. And, more importantly, it shouldn't. This is not the Government's role--to guarantee the availability of DIP lending. THIS IS EXACTLY HOW THE RESIDENTIAL REAL ESTATE MESS GOT STARTED, for heaven's sake!! The federal government used its power to incentivize and convince banks to make BAD, RISKY LOANS!

This is a private industry. It is the companies' responsibility to sell themselves as a worthy risk. The fact that anyone on the Hill even THINKS this is the Government's job is disturbing.

It is not done in bankruptcy. The Government is not a bank. It does not extend DIP financing.

This is a new one.

Of course, all this is moot if the companies refuse to declare as they stated before Congress.

Yeah, I agree. Ford has already said that "bankruptcy is not a viable option." That's probably code for: "we can't get a confirmable plan of reorganization."

Also, in the articles I read Obama's team was negotiating with lenders, etc to arrange the deal. I'm not sure the government funding is their first option. I do think they'd push that if they need to do so. I think they need to have something available to act quickly if nothing happens before Jan 20th. By then, the industry may be in liquidation.

As per another article, Pelosi and Reid are against the bankruptcy/financing plan preferring to pass this additional 25 billion from TARP in December.

I don't have a problem with him sending in some assistance, to see if he can help facilitate getting something done. Mediators are often helpful. BUT, I have a big problem if he is using Government-backed $$ promises to get the deal. The money behind this solution should be between two private entities (or, more specifically, between the company and a horde of banks).

Pelosi and Reid's idea is self-serving and short-sighted. I presume they are doing what they are doing because it will cover the companies until Obama is in office, then they can come up with a plan, during Obama's term, to "save" the companies. Which they won't be able to do in any significant way. Meanwhile, they throw $25BB down the drain. And it's ironic--that's the $25BB the left had pushed for to use as incentives for research and production of green cars.

By the way, I am NOT suggesting that I am some BK genius and I have the answer. I sure don't. But I know what won't work...and throwing money at the problem when the basic, fundamental element (the business plan) is not viable won't good for anyone, in the long term.

[DCJenn]

Re: GM in a government-subsidized prepack...

and sell the corporate jets on ebay.

J.

[GrayMatterWife]

Re: GM in a government-subsidized prepack...

and sell the corporate jets on ebay.

J.

AMEN!!!

[Sheherezade]

Re: GM in a government-subsidized prepack...

Sheherezade wrote:
As a bankruptcy attorney, what other options do you see that would allow the government to guarantee they'd get financing after declaring bankruptcy.


There are no "options" that would allow the Government to do this. And, more importantly, it shouldn't. This is not the Government's role--to guarantee the availability of DIP lending.

In this statement, I meant "What other options do you se that make Romney's statement about guarantees for the DIP financing make sense?". I can't see how the government guarantees and yet stays totally out of the deal.

And it's ironic--that's the $25BB the left had pushed for to use as incentives for research and production of green cars.

Actually, it was the Republican and White House plan to re-allocate the 25 B for fuel efficient cars to bail them out. They came up against the Dem plan to take an additional 25B from the TARP (700 Billion economic crisis money). That's the stalemate currently, although I think they have some back burner deal that hasn't been detailed. They come back Dec. 2 and want a business plan presented at that time before a vote.

I think Obama's pre-packaged thing has only been in the Obama camp talks - not an active floor debate. I was thinking it was something they'd have ready if NOTHING passes, no bankruptcy is declared and the companies stagger to Jan 20th. Then, they'd have a deal with bankruptcy/financing/restructuring ready to launch. I'm not sure that's accurate. It's just how I read the report.

[GrayMatterWife]

Re: GM in a government-subsidized prepack...

Actually, it was the Republican and White House plan to re-allocate the 25 B for fuel efficient cars to bail them out. They came up against the Dem plan to take an additional 25B from the TARP (700 Billion economic crisis money). That's the stalemate currently, although I think they have some back burner deal that hasn't been detailed. They come back Dec. 2 and want a business plan presented at that time before a vote.

No kidding? This "pay to get 'em to go green" nonsense was a WH idea? That figures! Bush always manages to violate conservative principles when it is convenient. It's so silly that the US auto industry has to be incentivized by the Government to go green--isn't the high demand of the Prius, etc. incentive enough? This is why they are nearly insolvent.