Bankruptcy remains an option for GM, analysts say

Wed Feb 18, 2009 6:48pm EST
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By Poornima Gupta and David Bailey

DETROIT (Reuters) - A government-backed bankruptcy reorganization remains an option for saving General Motors Corp and Chrysler LLC, analysts said on Wednesday, even though the automakers have said they would rather not go down that road.

GM and Chrysler asked for billions of dollars more in federal aid on Tuesday and announced sweeping changes including capacity reductions and job cuts.

Some Wall Street analysts were disappointed that the restructuring plans submitted to the U.S. Treasury did not include key concessions from the United Auto Workers union and the automakers' bondholders.

One analyst said that taking the bankruptcy option off the table would reduce the bargaining power of the companies.

Both GM and Chrysler analyzed a possible bankruptcy filing in their restructuring plans but stressed that it was not their preferred method for reorganizing and that they hoped to avoid this scenario.

GM, which has requested $16.4 billion in additional loans from the U.S. government for a total of up to $30 billion, has said it would run out of cash as soon as March without new federal funding.

The request came shortly after smaller rival Chrysler asked for another $5 billion in aid.

GM's request that a sizable chunk of total aid come in the form of preferred equity rather than debt is a "tacit acknowledgment of the fact that GM may emerge from an out-of-court process as a still highly levered firm," JP Morgan analyst Himanshu Patel said.   Continued...

<p>Car salesman Ray Schaffer (L) shows a customer a 2009 Chevrolet Impala sedan at a dealership in Dearborn, Michigan December 29, 2008. REUTERS/Rebecca Cook</p>