It appears that the creditors at Chrysler and GM (GM) may be running out of luck and time to get what they think is a reasonable payments for their investments.
A federal bankruptcy judge has approved a quick sale of Chrysler’s assets, presumably to Fiat. According to Reuters, the judge said the action was “appropriate and necessary” given that there is evidence that “there is an urgent need for the deal to be consummated.”
At the same time, GM (GM) plans to issue 60 billion new shares so that it can do a debt-for-equity swap with the government for $7 billion and offer creditors common stock for $27 billion in claims. The creditors may take the issue to court, but the precedent of the Chrysler case is making their cause look less likely to prevail.
GM will reverse-split its share 100-to-1 to keep all of the dilution involved in recapitalizing the company from moving its share price into the pennies. It is a small trick that will not fool anyone, but stockholders probably don’t want to see their shares trading for a dime. People who own GM shares now will have their holdings cut 99%.
The effect of all the moves by the two car companies is almost certainly a sign that the creditors have lost and the government has won. It may be that the deck was stacked by the Administration’s rapid move to show it would take the firm’s into Chapter 11, but it is also almost certainly an indication that the courts will favor jobs over money owed to banks and the widows and orphans who hold bonds in the two companies.
Douglas A. McIntyre
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