Big Three Bailout Rejected; GM Hires Bankruptcy Advisers, Report Says
December 11, 2008
By Michelle Krebs
The U.S. Senate rejected legislation that would have provided $14 billion in federal loans to keep afloat General Motors and Chrysler, which say they will be out of money by the end of the year.
At the same time, GM reportedly has hired lawyers and bankers to consider whether to file for Chapter 11 bankruptcy. Those advisers are among the best known in the bankruptcy and restructuring business who would handle what would be one of the largest bankruptcy filings in U.S. history.
Senate Majority Leader Harry M. Reid announced the bill failed in a test vote of 52 to 35; it needed 60 votes to pass. Reid appealed to the Bush administration to reverse its position and dip into the $700 billion in Troubled Assets Relief Program (TARP) to help the automakers.
The White House originally said those funds were to provide liquidity to banks, not to help the automakers, but on Thursday night there appeared to be some willingness by the administration to consider reversing its stance. But after the vote, a White House spokesman said options would be evaluated.
The rejection of the $14 billion in loans, led by opposition from mostly Southern Republicans from states with foreign-operated, non-union auto plants, came after the bill appeared to be gaining a second wind. Hours of negotiations with Congressmen, Big Three executives and United Auto Workers (UAW) officials had occurred throughout the day and by early evening it appeared some progress was being made.
Sen. Bob Corker, a junior Republican Senator from Tennessee and a member of the Senate Banking Committee, had put forth a plan that would impose far more stringent restructuring standards than the House bill and would reduce compensation of UAW workers.
However, Republicans, who appear to want to bust the autoworkers' union, had insisted on immediate wage and benefit cuts but the UAW. UAW President Ron Gettelfinger already had agreed to make changes in the current contract, negotiated in 2007, and had said the union would return to the bargaining table if all of the automakers' other constituencies, such as suppliers, dealers and debtholders, did as well.
Reid warned that Friday's stock market trading is likely to be ugly as a result of the Senate's rejection of the automaker rescue package. "I dread looking at Wall Street tomorrow. It's not going to be a pleasant sight," he said.
Indeed, overseas markets immediately began tumbling on the news; by midenight, the dollar had fallen to a 13-year low.
"Millions of Americans, not only the autoworkers, but people who sell cars, car dealerships, people who work on cars, are going to be directly impacted," Reid added. "It's going to be a very, very bad Christmas for a lot of people as a result of what takes place here tonight."
Biggest Names in the Bankruptcy Business
As the Senate proceedings took place, the Wall Street Journal, quoting unnamed sources, reported that GM had hired Harvey Miller of New York law firm, Weil Gotshal & Manges LP, to handle a potential bankruptcy. Miller worked on bankruptcies such as Lehman Brothers Holdings Inc., Bethlehem Steel Corp. and Marvel Entertainment Group.
Others recruited by GM, according to the newspaper, also include:
Jay Alix, founder of the Detroit-based turnaround firm AlixPartners and has worked with GM in the past;
William Repko of financial advisory firm Evercore Partners who has been advising GM for months, including on the failed merger with Chrysler. Repko is the former head of J.P. Morgan's restructurig department;
Arthur Newman of the Blackstone group, where he heads the restructuring practice. Newman is focused on GM's multi-billion-dollar voluntary employee beneficiary association (VEBA), which moves UAW retiree health care costs off GM's books and into a union-run fund, the journal reported.
Martin Bienenstock, a bankruptcy attorney for the law firm of Dewey & LeBoeuf LLP. He worked on the Enron bankruptcy.
The United Auto Workers has hired Lazard Ltd. to help it renegotiate a multi-billion health-care trust set up by the Big Three auto manufacturers. Milliman Inc. has also been retained to handle the actuarial analysis, a UAW source told the Wall Street Journal.
Dealers Meet on Ad Campaign, Saturn Future
The paper further reported that GM and its dealers are meeting this week to discuss a new advertising campaign to spark sales amid concerns about GM's health. GM will also discuss plans for its Saturn division, which it may shutter. One option includes putting the division into bankruptcy protection, as it is technically a separate entity, the journal reported.
Posted by Michelle Krebs at 4:34 PM under Chrysler , Companies , Featured , Ford , GM | Comments (0) | digg this | Seed Newsvine
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