General Motors Ready To Emerge From Bankruptcy

July 6, 2009

While most of America was enjoying a long holiday weekend full of cookouts and fireworks, Judge Robert Gerber was overseeing a very different sort of explosive activity in Manhattan: the conclusion of the General Motors bankruptcy trial. Late last night, Gerber ruled in favor of General Motors' request to sell off bad assets and shift good ones to a new company (owned, for the time being, mostly by the federal government). Doing so, Gerber argued, would "prevent the death of the patient on the operating table." Which is perhaps the most optimistic metaphor we could expect, given the circumstances.

This is a major coup for GM, and for Obama's auto industry task force, which brokered the deal. As recently as last week, some at General Motors were expressing doubt that the bankruptcy trial could wrap before the government's imposed liquidation deadline of July 10. With this ruling, and the appended four-day stay (allowing for one last round of challenges to be filed), the company is on track to meet that deadline head-on.

That's not to say there wasn't significant opposition to the deal in court. Numerous arguments were submitted against the proposal--including one filed by an organization called the "Unofficial Committee of Family & Dissident GM Bondholders"--insisting that GM could follow a more traditional Chapter 11 bankruptcy, which would give shareholders more control over the restructuring. Gerber was clearly unconvinced that such a path would go smoothly. As he wrote in his 95-page opinion:

"GM cannot survive with its continuing losses ... and without the governmental funding that will expire in a matter of days.... As nobody can seriously dispute, the only alternative to an immediate sale is liquidation -- a disastrous result for GM's creditors, its employees, the suppliers who depend on GM for their own existence, and the communities in which GM operates.... In the event of a liquidation, creditors now trying to increase their incremental recoveries would get nothing."

As it stands, the U.S. government is now set to control 60% of the new GM, with the UAW (17.5%), Canada (12.5%), and bondholders (10%) rounding out the slate.  There is talk of conducting an IPO for the new company as soon as 2010. How that might affect government ownership in the company and the repayment of federal loans has yet to be worked out, but for now, General Motors has some breathing room in which to celebrate.

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