Losers in GM Bankruptcy Are Taxpayers, Altman Says (Update1)
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By Greg Miles and Caroline Salas
May 29 (Bloomberg) -- The biggest losers in a General Motors Corp. bankruptcy would be U.S. taxpayers, said Edward Altman, a professor at New York University’s Stern School of Business.
“The bill is now up to $50 billion or more, which is what we said would be needed, but the government should be first in line,” Altman said today on Bloomberg Television. “The government will now have stock in the company, more than 72 percent. It is a big uncertainty if the company will do well.”
The largest U.S. automaker plans to file for bankruptcy protection June 1, according to people familiar with the matter. The U.S. will fund GM’s trip through bankruptcy with about $50 billion, including the automaker’s existing $19.4 billion in federal loans, the company said in a statement.
GM, contemplating a sale of its assets to a new company through bankruptcy, would give 72.5 percent of GM’s equity to the U.S. Treasury, 17.5 percent to a union health trust, and a 10 percent stake to the old GM to pay bondholders and other creditors, the Detroit-based automaker said yesterday in a filing.
Altman said he’s concerned that GM’s struggles may persist even after emerging from bankruptcy.
‘Chapter 22s’
“There are a disturbing number of Chapter 22s, where they have to file again within five years because it did not work and they either have too much debt or haven’t fixed the operational problems,” Altman said. “GM will fix the debt. The question is, will the economy permit them to do it? I have great doubts that will happen.”
GM said yesterday that it reached an agreement with some of its largest bondholders to smooth the way through bankruptcy. After rejecting GM’s offer to swap their debt for a 10 percent stake, a bondholder group representing 20 percent of the $27.2 billion in principal agreed to support the terms of the new bankruptcy plan. GM sweetened its offer to bondholders, proposing they get warrants for as much as 15 percent more equity if they agreed to support the government’s plan.
The government has “done a remarkable job” preparing GM for bankruptcy,” Altman said. “Six months ago, I would never have thought that a company as large and complex” could go through bankruptcy quickly.
Altman said the United Auto Workers union represents “the big winners” in GM’s bankruptcy. A UAW health-care trust was offered $6.5 billion in preferred stock that pays a 9 percent dividend and a $2.5 billion note in addition to their 17.5 percent equity stake for their $20 billion in claims.
“It could have been much worse for them,” Altman said.
To contact the reporters on this story: Greg Miles in New York at gmiles1@bloomberg.net; Caroline Salas in New York at csalas1@bloomberg.net
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Thie biggest loser of Obama's admn is the taxpayer. What a farce.
