A Chapter 11 filing by General Motors Corp. is looking more likely now that the automaker has hired bankruptcy advisers. It's an option fleshed out in detail in
David Elman's feature in the Deal newsweekly, and one supported by
Jeff Marwil, a partner with Winston & Strawn LLP. Marwil, who co-chairs the firm's restructuring and insolvency group, says it's the right move for all interested parties -- even in light of
government promises of TARP funds and loans as Congress reconsiders a long-term bailout.
"There needs to be some legally enforceable and binding mechanism to force treatment on nonconsenting third parties -- unions, retirees, contracting parties, landlords, dealers, bondholders, shareholders. That cannot be done by a bailout or restructuring," says Marwil. "The only thing that can be done that binds third parties to change a deal they already have is if they consent. I don't see retirees, for instance, consenting to walk away from their healthcare and retirement benefits. In a bankruptcy case, they could be forced to."
The argument that a car czar could bring third parties to the table isn't realistic, adds Marwil. The czar would serve as more of an arbitrator, and in this case, he says, arbitration probably isn't going to work. Just look at the United Auto Workers role in the Senate bailout collapse.
"When asked if they would immediately agree to wage concessions, the union said, 'No.' In a bankruptcy case, the union could say no, but the debtor has the statutory ability to terminate the union contract if the contract is crippling the company."
Any government assistance should come in the form of debtor-in-possession financing. But a wholesale financial bailout in the absence of Chapter 11, says Marwil, will only set up the federal government -- and taxpayers -- to keep writing checks. "If the government is going to give them money, then the government is in for a penny, in for a pound. It's going to be giving them money for a long time."
And what of GM chief executive Rick Wagoner Jr.? Marwill believes Wagoner will keep his job, at least as the case moves through bankruptcy "Should management be rewarded and maintain their positions post-emergence?" asks Marwil. "My own personal view is no."
- Suzanne Stevens
Join Corporate Dealmaker's LinkedIn forum
Juergen Lasowski
And the winners are...
Could I lose my pension and health insurance if Gm files for bankruptcy. If the government does another bailout will effect the retirees? Any information would be greatly appeciated.
Thank-you