GM assets would go to feds under bankruptcy

5/20/2009

NEW YORK - If General Motors Corp. files for bankruptcy, as widely expected, its healthy assets will be quickly sold to a new company owned by the U.S. government, a source familiar with the situation said yesterday.

The source, who was not cleared to speak with the media and declined to be identified, said the U.S. government would pay for the assets by assuming the automaker's $6 billion of secured debt and forgiving the bulk of the $15.4 billion of emergency loans that the U.S. Treasury has provided to GM.

The government is negotiating the terms on which it will assume GM's secured debt and might make an offer to holders of the debt that is far superior to the one made to Chrysler LLC's secured lenders, the source said.

Chrysler filed for bankruptcy in April and has proposed paying its secured lenders about 28 cents on the dollar.

The new GM is likely to distribute stock in the company to GM's unions in return for concessions on wages and benefits, the source said. The percentage of stock given to the unions, bondholders, and other creditors whose debt is not repaid by the new GM has not been determined, the source said.

In addition, the government would extend a credit line to the new company, the source said.

The remaining GM assets would stay in bankruptcy protection to satisfy other outstanding claims, similar to what has been proposed at Chrysler, which filed for bankruptcy protection April 30.

The government has given GM until June 1 to restructure its operations to lower its debt burden and employee costs. Sales have plummeted in recent years.

GM will likely take on some of the operations of its bankrupt parts supplier Delphi Corp. to make sure it gets needed auto parts throughout its reorganization, according to the source.

The company is negotiating terms with Delphi's estate, the source said.

The board of the new company would be established with the tacit approval of the government. Fritz Henderson, who took over as GM's chief executive this year after the government pushed out Rick Wagoner, will head the new company, the source said.

Setting up a new company to buy the healthy assets is aimed at bringing operations out of bankruptcy as quickly as possible. GM is concerned that consumers might not be willing to make a major purchase from a bankrupt company, fearing it would not honor warranties or provide service.

The automaker said it does not expect to reach a deal on concessions with the United Auto Workers before May 26. A deal with the union is one of the restructuring moves that GM must complete by June 1. The company employs thousands at Ohio plants, including at powertrain plants in Toledo and Defiance.