GM Future

Recently there have been many speculation pieces regarding what may or may not happen to General Motors if and when the company has to file for Chapter 11 bankruptcy protection. At the current time, there is no certainty of a bankruptcy filing by GM. The new offer to the unsecured bondholders has not been formally presented to them yet, that is slated to happen this Wednesday when the Auto Task Force and GM officials meet with representatives of the bondholders. That outcome of this most recent bondholder offer is likely going to be the ominous sign of the future of General Motors. If accepted, an out-of-court restructuring may just be possible yet. If the bondholders refuse (again), a Chapter 11 filing will be following shortly. GMI sources have informed us of what the current bankruptcy plans entail after the filing has been made. We feel like it is imperative to clarify what the current plans are.

Reports are correct that, if bankruptcy is filed, General Motors will seek a “363” deal in court. Such a deal has the company split into two portions; one comprised of the “good” assets (let’s call it GoodGM for ease) and one filled with the “bad” assets (call it BadGM). During the proceedings, BadGM would be given over to the holders of GM’s debt to be liquidated to raise money to pay off former GM’s debt. Note that GM has approximately $29 Billion in debt; $7 Billion of which is secured by Saturn assets (including Spring Hill, TN plant). The government’s $13.4 Billion loan to GM is also considered secured debt, with a vast amount of assets up as collateral.

GoodGM would reemerge fairly quickly from the bankruptcy process (if everything goes to plan). The U.S. government would release GM, GoodGM and BadGM of the $13.4 Billion in debt, but as a trade-off take a 100% ownership in GoodGM upon reemergence. Shortly after the new company emerges from bankruptcy, the U.S. government (currently the owner of GoodGM) would issue an initial public offering (IPO) on the new company and it would become a public company much like the current General Motors, though the current GM stock would be canceled in bankruptcy. Most of the money raised from the investment of the new company would likely go to the VEBA fund for the UAW.

A Look at GM's Debt

Itemized:
Unsecured debt: $29 Billion (this is the amount that is taking hold in tomorrow's bondholder meetings)

Debt to U.S. government (considered secured by assets): $13.4 Billion

Secured (non-government) debt: $7 Billion (this is all secured by Saturn and the Spring Hill, TN assembly plant)

UAW VEBA Obligations: $48 Billion (considered unsecured debt)

Total Debt: $97 Billion (including VEBA obligations)
Total Debt (without VEBA): $49 Billion

The above is a very general view of what the bankruptcy plan for General Motors is shaping up to look like. Some will argue against the plan, but GMI sent the above off to our sources for verification prior to publication and in the past they have been spot on. Tomorrow's bondholder meeting is likely to shed light on whether or not bankruptcy is the only answer.