GM To File For Bankruptcy Monday - Obama Officials
May 31 2009 - 10:30PM
Dow Jones News
The Obama administration said Sunday that General Motors Corp.
(GM) will file for Chapter 11 bankruptcy protection in a matter of
hours and receive $30.1 billion in new government aid.
GM's bankruptcy filing will be the largest by an industrial
company in U.S. history and among the largest overall.
Top Obama administration officials said the U.S. government
expects to hold a 60% ownership stake and $8.8 billion in debt and
preferred stock in the revamped company. The Canadian and Ontario
governments, which will lend about $9.5 billion to GM, will
collectively hold a 12% stake in GM. The remaining shares will go
to the United Auto Workers and bondholders.
Previously, GM had said the U.S. government could own up to 72%
of the new GM.
The Obama officials, briefing reporters on the condition they
would not be named, also confirmed that the administration will
give $30.1 billion in new assistance to the company. That brings
the U.S. government's total investment in the auto maker to nearly
$50 billion. But the officials insisted the new aid would be the
last U.S. taxpayer dollars to go to the company.
"There's no plan of any kind, intention, contingency plan,
anything of any kind for further support beyond this point," one
official said. "One never says never with respect to any
hypothetical contingencies that could arise in the future. But this
is it for support for GM."
Obama officials didn't confirm whether the filing would take
place in New York, where GM officials have planned to make an
announcement Monday. President Barack Obama will also give remarks
on GM Monday, administration officials said.
Obama officials said Sunday that the company will close 11
plants and idle three others, but said the administration didn't
participate in deciding which plants would be affected. The company
is expected to identify which plants it will close.
GM's bankruptcy, planned for months under the close eye of
Obama's auto task force, will come after last-minute deals with
senior bondholders and the United Auto Workers that are expected to
make for a smoother reorganization.
The Obama officials predicted GM would spend 60 to 90 days in
court, undergoing a so-called "Section 363" sale of its productive
assets to a new company under the same name. The process is
intended to help GM shed liabilities by more than half and
drastically reduce its "breakeven" point, Obama officials said
Sunday.
The new GM will break even once industry-wide car sales in the
U.S. reach 10 million, and will make a profit beyond that, the
officials said. GM's breakeven point previously was about 16
million annual U.S. car sales.
Car sales this year are on track to be between 9 million and 10
million.
Obama officials reiterated that the administration will not
influence day-to-day operations of GM. Instead, the government's
role will be limited mostly to appointing a majority of the
company's board members, which will be selected from among business
executives in coming months. None of the board members will be
government employees, Obama officials said.
The Canadian government will also have the power to appoint a
board member. The UAW will appoint a nonvoting board member.
The administration's auto task force, consisting of cabinet
members, senior advisers and a support staff, will remain intact, a
senior official said Sunday.
Obama officials said they were reluctant to take the
unprecedented move to acquire ownership of the nation's largest
auto maker, but it was necessary to insure taxpayers are
repaid.
"We had a choice as guardians of the taxpayer dollars," one
senior official said.
The government could have taken the equity stake, "or we could
have simply left it behind and given it to others and taxpayers
would have ended up much shorter in terms of the total outcome. It
was simply a necessary outcome of the restructuring process and the
desire to have GM with a substantially deleveraged balance
sheet."
-By Josh Mitchell, Dow Jones Newswires; 202-862-6637;
joshua.mitchell@dowjones.com