GM’s (GM) creditors seem to believe that they should get a better deal than the car company is offering them so that it can reduce its debt. Even the most senior creditors are being asked to take a very modest portion of the face value of their loans to help the huge car company get out of financial trouble. Creditors believe that they have the ability to stop or at least draw out a Chapter 11 process. That would make a bankruptcy less attractive to the Treasury, which would simply like to get the GM matter resolved in a way that does the least to disrupt the industry, its suppliers, and its employees.
According to The Wall Street Journal, the creditors may find that they have very few rights. The paper writes that “Some bondholders fear GM’s fast-track reorganization inappropriately mirrors what was done last fall when Lehman Brothers filed for bankruptcy protection as the U.S. financial system seized up.” Lehman’s creditors did poorly in the process.
While the fate of the creditors and GM’s unions and suppliers may be in the hands of a bankruptcy judge who has broad powers, it is reasonable to question whether that judge would allow a prolonged set of proceedings that would drag for months while GM got further and further into financial trouble. At some point even the legal system probably wants to take stock of how badly the nation’s economy could be damaged if the bankruptcy is not handled expeditiously.
The creditors had better hope that they get a judge who will favor the need for proper legal procedures over one who has any practical considerations about how quickly GM’s problems get solved.
Douglas A. McIntyre
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