Now that GM (GM) has a reasonable deal in place with the UAW, the federal government is preparing the car company for a Chapter 11 filing which may come ahead of the June 1 deadline that it had set several months ago.
The government plan would bypass the car company’s creditors. Their intransigence will have cost them the few extra days of hard bargaining that they could have had left to salvage some percentage of their investments. That rug is about to be pulled out from under them.
According to The Washington Post, “The shifts into and out of bankruptcy are landmarks in the Obama administration’s attempt to broker a historic restructuring of the American auto industry in the space of months.” The GM action may leave open the doors for lawsuits by debtholders who could argue that they have negotiated in good faith and were then deprived of a chance to come to an agreement at the eleventh hour.
The attempt by Chrysler creditors to halt or slow that company’s move through Chapter 11 failed in the bankruptcy court. But, those debtors were given until the government’s deadline to complete a deal. That effort may have failed, but the rules were not changed in the middle of the game.
The accusations that the Administration has trampled the legitimate rights of creditors is about to grow louder. A GM Chapter 11 filing before the end of May will be seen as depriving secured lenders and bondholders of a kind of “due process”, and that will send a signal to any other group which holds obligations from an American company receiving US aid.
The Administration’s actions with GM show that if there was ever a point at which the playing field was level, that time is gone. Those creditors that don’t knuckle under will get nothing at all.
Douglas A. McIntyre
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