"The economic ramifications of an outright bankruptcy would be severe," New York University Professor Nouriel Roubini said in an interview with Bloomberg Television on Dec. 12. The economic slump is already so severe that ``there's not going to be a recovery of growth until 2010," he said. (Bloomberg)
Plus billions of dollars are coming due so they better hurry up.
"Cash-starved General Motors Corp. and Chrysler LLC within weeks will be hit by $9 billion in bills for already-delivered auto parts, a tab they likely can't afford to pay without emergency government assistance." (WSJ)
GM is making moves though.
"General Motors Corp. (GM) will idle about 30% of its North American assembly plant volume and cut production by about 250,000 vehicles in the first quarter because of the recent steep drop in sales. The move affects 14 U.S. plants, three in Canada and three in Mexico. GM also said it will continue to assess its powertrain and stamping capacity needs and make appropriate changes." (DJ via CNN)
However with car sales falling and interest coverage being squeezed GM still needs to figure out how to reorganize its debt. Since there's a threat of bankruptcy and the bonds are trading at distressed levels bond holders might be willing to work with GM on a swap. But like the article says, some bond holders are insured with credit default swaps that get their money back if the company defaults. Plus GMAC (owned by Chrysler and GM) is also facing deadlines.
"Winning rescue financing from the US government is just one of several huge obstacles for General Motors. Even with that cash, it will need to quickly cobble together some options its bondholders find attractive if it wants to lighten its debt load. GM is working behind the scenes to persuade its huge pool of bondholders to swap their debt for equity in the company as it attempts to restructure without filing for bankruptcy." (FT.com)
"Attorneys and financial gurus put their heads together and came up with a complicated debt exchange plan that would give GMAC as much as $38 billion in new capital--more than the $30 billion the Federal Reserve was requiring for the struggling lender to become a bank. One problem: the bondholders weren't interested, and now GMAC might be on the verge of bankruptcy, Bloomberg reports." (AmLawDaily)
So there's a lot to do before this historic year ends and hopefully it all ends well.
