- The Washington Times - Saturday, May 30, 2009

A bankruptcy judge in Manhattan, N.Y., on Friday postponed action on Chrysler’s plan to emerge from bankruptcy even as its Detroit big brother, General Motors Corp., was preparing to enter bankruptcy over the weekend in hopes of securing a massive reorganization.

Judge Arthur Gonzalez was asked to rule on Chrysler’s proposal to sell the most profitable and valuable parts of the company - including its Jeep and minivan divisions - to a consortium led by Italy’s Fiat. He put off the decision until Monday after being deluged with more than 300 objections from lenders and dealers who felt short-changed by the bankruptcy plan.

The delay in the decision means the Chrysler case could end up colliding Monday with the GM case, which is expected to be presented to the same court and possibly the same judge. The judge so far has largely sided with Chrysler and the U.S. government over those who objected, and he was considered likely to approve the sale to Fiat. The Chrysler case has been considered a template for GM’s landmark restructuring.

Should Chrysler emerge from bankruptcy in less than a month’s time as planned, it would represent a significant achievement for the battered Detroit automaker and its government overseers on the White House auto task force. Until recently, bankruptcy was considered out of the question in most of the Detroit auto world, and the bid to achieve a reorganization so quickly seemed like a reckless gamble.

But the looming insolvency of GM promises to dwarf the Chrysler case in size and significance. Even the White House officials who steered GM toward bankruptcy acknowledge that it will be far more complex and difficult to achieve in one to two months, although that remains their goal.

GM and the White House were busy Friday tying up the remaining loose ends on GM’s reorganization plan. It cleared one remaining hurdle easily as the United Auto Workers union endorsed the restructuring agreement, which includes a freeze on pay and bonuses, with a 74 percent vote.

The last and most important remaining obstacle was the powerful coalition of thousands of individuals and institutions holding GM’s $27.2 billion of bonds. Investors have until 5 p.m. Saturday to accept or reject a new offer from the company to give them as much as a 25 percent stake in the newly reorganized GM after the bankruptcy.

While many bondholders continued to complain about getting less than the union - whose health care trust fund secured up to a 20 percent stake in the new GM in exchange for forgiving $10 billion of debt - a steering committee of bondholders was urging investors to sign onto the deal because it holds the best chance of recovering a substantial portion of their investment.

The stock market braced for GM’s historic bankruptcy filing, expected over the weekend or on Monday. GM’s stock fell below $1 for the first time in the company’s 100-year history and closed at 75 cents, crossing a threshold that ensures it will lose its listing on the New York Stock Exchange and be pulled from the blue-chip Dow Jones Industrial Average.

GM’s stock will become worthless in bankruptcy, and its stockholders have been offered only a 1 percent share in the newly reorganized company. Moreover, for as long as 18 months after emerging from bankruptcy, GM will be 72.5 percent owned by the federal government and will be a private rather than a publicly held company.

More details of GM’s reorganization came out Friday, including a concession to the workers union to retool one plant previously slated for closure to make 160,000 subcompact cars the company originally planned to import from China. GM also disclosed the concessions on wages and benefits would save it $1.3 billion a year.

Diana Tremblay, GM’s vice president of labor relations, called it “an innovative agreement that will enable GM to be fully competitive” with Japanese, Korean and European carmakers.

Eric Siegert, a representative for GM’s bondholders and senior managing director of investment bank Houlihan Lokey Howard, said he was persuaded to support the reorganization plan because the U.S. Treasury agreed to give bondholders a better deal than the government itself, which is providing GM a total of $70 billion in loans and cash.

The government normally would be paid before the bondholders in a bankruptcy process, but the plan would enable the government to get full repayment only if GM’s market value reaches a record $69 billion after it emerges from bankruptcy - something analysts consider highly unlikely, Mr. Siegert said.

Meanwhile, bondholders would recover much of their claims if the company’s value reaches $30 billion, he said.

“This is a very, very unusual result for junior creditor to receive that much value before a senior creditor,” he said.

But other credit analysts were unconvinced.

“The auto task force offers a poison carrot in lieu of a stick in the eye,” said Glenn Reynolds, analyst at CreditSights, an investor research group, who called the new offer “grotesquely ridiculous, absurd, unfavorable and in bad faith.”

He said the deal would only pay off for bondholders “if GM mysteriously starts to mint money and reaches record earnings from a shrinking global share and less profitable model mix.”

• Patrice Hill can be reached at phill@washingtontimes.com.

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