GM, Chrysler May Be Forced Into Bankruptcy, Report Says
By Michelle Krebs February 9, 2009General Motors and Chrysler may have to be forced into bankruptcy by the U.S. government to assure repayment of $17.4 billion in federal bailout loans, Bloomberg News reported Monday.
Automakers have long argued bankruptcy would be sure death, as consumers will not buy cars and trucks from a bankrupt automaker. Still, experts argue placing them in bankruptcy is possible due to the priority line for creditors.
At the moment, U.S. taxpayers take a backseat to prior creditors, including Citigroup Inc., JP Morgan Chase & Co. and Goldman Sachs Group Inc., notes Bloomberg citing loan agreements posted on the U.S. Treasury's Web site.
If federal officials fail to get a consensual agreement to change their place in line for repayment, they have the option to force the companies into bankruptcy as a condition of more bailout aid. The government would finance the bankruptcy with a so-called "debtor in possession" or DIP loan, a lender status that gives the U.S. priority over other creditors, experts told Bloomberg.
The business news service reported Friday that the government had hired the bankruptcy law firm Cadwalader, Wickersham & Taft LLP to help establish its place at the front of the line for repayment.
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