GM Now Sees Bankruptcy as ‘Probable,’ Henderson Says
GM Now Sees Bankruptcy as ‘Probable,’ Henderson Says (Update4)
By Greg Miles and Katie Merx
May 14 (Bloomberg) — General Motors Corp. Chief Executive Officer Fritz Henderson said bankruptcy is now probable as the biggest U.S. automaker races to beat a June 1 deadline to cut costs and debt to avoid it.
“It is probable” that GM will end up using the bankruptcy process, Henderson said today in a Bloomberg Television interview at the company’s headquarters in Detroit.
The comment went beyond Henderson’s May 11 assessment that resorting to court protection to reorganize was “more probable” than GM had previously thought. Henderson is signaling that GM recognizes that bankruptcy is inevitable, said Dennis Virag, president of Automotive Consulting Group Inc. in Ann Arbor, Michigan.
“They would prefer not to do it, and it would be best if they did not have to go through bankruptcy,” Virag said. “I just don’t see any way GM can successfully reorganize without it.”
GM’s bankruptcy filing, if it happens, will likely be in New York, notwithstanding opposition from officials in its home state of Michigan, said a person familiar with the matter who declined to be named.
Weil Gotshal & Manges LLP, a New York-based law firm that is GM’s longtime adviser, may already have more than 100 lawyers working on the automaker’s restructuring, and has been preparing a bankruptcy filing in case it’s needed, according to the person and another individual familiar with the matter.
Given the size of GM, a bankruptcy proceeding may demand more than 500 Weil lawyers, exceeding the number who worked on the bankruptcy of Enron Corp., the energy trader the collapsed in 2001, said Stephen Lubben, a professor at Seton Hall University School of Law in Newark, New Jersey.
GM’s tasks include shaving operating expenses and negotiating with bondholders and the United Auto Workers to shrink debt and union obligations by $44 billion. President Barack Obama’s automotive task force set the timetable to complete those tasks or have the company end up in court.
GM is offering bondholders 225 shares in a newly created entity for each $1,000 in principal. GM, stripped down to its best assets and less debt, would then execute a 1-for-100 reverse split of the stock.
Bondholders countered that proposal with a plan calling for GM to give them 58 percent of the equity in the reorganized company. Henderson said last week that the U.S. Treasury has indicated it “would not be supportive of shareholding in excess of 10 percent” for the bondholders.
Without support from 90 percent of the bondholders for the 225-share offer by May 26, GM has said it plans to file for bankruptcy by June 1.
Investors have been betting that GM’s equity value will be wiped out, with the shares tumbling 94 percent in the 12 months that ended yesterday. GM fell 6 cents, or 5 percent, to $1.15 at 4 p.m. in New York Stock Exchange composite trading.
GM’s comments on its bankruptcy prospects have been evolving since Henderson took over in March after the car task force asked CEO Rick Wagoner to step aside. Henderson used the “more probable” phrasing to reporters on March 30, while saying that court protection wasn’t GM’s preferred option.
Any trip through bankruptcy court must be fast, Henderson said today. It’s also important for GM to be able to make speedier decisions, he said.