Monday, April 13, 2009

Will GM really file for bankruptcy before summer?

Some of the media coverage and chatter this morning seemed to suggest that a GM bankruptcy was likely before summer. But, if you read the coverage carefully, such as the article in The New York Times by Micheline Maynard and Michael de la Merced entitled "'Surgical' Bankruptcy Possible for G.M." it is clear that bankruptcy is still only an "option", not a near slam-dunk certainty as the chatter suggests. It seems clear that the "leak" of preparation for a bankruptcy filing is intended to convince bondholders and the unions that they really do need to cave in on the demands of GM management as the government is requesting. In other word, the content and timing of the "leak" is a negotiating tactic.

I do not doubt that the government is in fact making plans for a possible bankruptcy filing by GM. If the bondholders and unions do not cave, bankruptcy will then be the only reasonable option left to the government.

Either way, at least we will have the certainty that by summer GM will be headed for a "light" future without most of its current baggage.

I continue to lean towards voluntary restructuring without a formal bankruptcy. The bondholders will have to decide whether they want to chance the uncertainty of bankruptcy or cut a deal while they can. My hunch is that the end result will probably be about the same either way.

I am tempted to buy a hundred shares of GM as a "lottery ticket" for restructuring. An alternative is to buy some GM debt at a firesale price that will get converted to stock whether in bankruptcy or voluntary restructuring. The bonds would probably be a safer bet, but even now may be priced too richly.

The open question is how much money the government will have to supply to fund healthcare and retirement "bailouts" for GM, regardless of how things turn out in June. That may make the government the de facto "owner" of GM, for now. Hmmm... GM = "Government Motors". Sigh.

In short, my belief is that GM will restructure without bankruptcy.

It also appears that GM will pick up and own the "remains" of its bankrupt Delphi spinoff. That would be an appropriate resolution.

-- Jack Krupansky


At 1:48 PM EDT , Blogger Nat said...

Hi Jack, I also am doing a Finance/Economics/Real Estate blog. You can visit it at

Thank you.


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