Friday, July 10, 2009

Strange Bankruptcy

Virtually every headline I can find refers to GM “emerging from” or “exiting” bankruptcy, and in the articles that I have read that theme is continued; that GM has set a record for a major corporation exiting from a Chapter 11 bankruptcy proceeding. The exception is this article in the Business section of the NY Times, which bears the rather cryptic headline, “With Sale of Its Good Assets, G.M. Tries for a Fresh Start.”

Parenthetically, my reaction to the headline was sort of, "Wtf, you're going to get a fresh start by selling your good assets?"

The normal Chapter 11 proceeding is that a business puts itself under the protection and direction of a judge for however long it takes to reorganize the company. Financing is examined, contracts are renegotiated, business plans are evaluated, product lines are evaluated for profitability... Loans may have their terms extended and or interests rates reduced, for instance. It may be determined that a product is not profitable and should be dropped.

Did all of that happen for General Motors in a couple of weeks? In a word, no. Longer answer, oh hell no. Here’s what the Times tells us,

“Earlier, G.M. and the government completed the legal paperwork needed to put the company’s most desirable assets, including brands like Chevrolet, Cadillac and GMC, into the new company — now named Vehicle Acquisition Company but soon to be renamed the General Motors Company. The federal government will hold nearly 61 percent of the new company, with the Canadian government, a health care trust for the United Auto Workers union and bondholders owning the balance.”

In other words, GM went into bankruptcy, sold all of its good stuff to a newly formed company and is remaining in bankruptcy. The new company will be renamed GM, so I’m assuming that the GM which is still in bankruptcy will be dissolved, its bad assets sold for whatever they will bring to pay off the holders of the debt, and the rest of its debt just written off. The money that was gotten from the sale of the good assets will presumably be used to pay the debt as well, of course.

I don’t know if this was a good deal or not, as this is certainly not my area of expertise, but there is suspiciously little commentary about a process that is really unusual. What I am pretty sure of is that a curve ball is hanging over the plate and the media is not swinging at it, and that always makes me suspicious. I am also quite sure that all of the statements about “GM exits from bankruptcy” are not accurate.

They should read, “GM is dead. Long live GM.”

1 comment:

  1. the last 2 paragraphs are likely correct and should have more scrutiny. I doubt it will happen, but the alternative was a open and shut liquidation. And I like the last line... Apropos.