GM Could Move Quickly Through Bankruptcy
STEVE INSKEEP, host:
General Motors once said that bankruptcy was unthinkable, but President Obama is forcing the company to think about just that. The White House speaks of a possible quick bankruptcy that would reorganize GM to survive. To understand what that would mean, we brought in Adam Levitin, an expert in bankruptcy law at Georgetown University Law School.
Is there such a thing as a fast bankruptcy?
Professor ADAM LEVITIN (Law, Georgetown University Law School): There is, and it's usually what's called a prepackaged bankruptcy, or prepack is the lingo. And a prepackaged bankruptcy is where all of the creditors and equity holders, all the various parties of interest have agreed beforehand on what the bankruptcy organization process would look like. They have a plan of reorganization that they've actually already submitted votes on, and they just take into the court to have that approved. And sometimes there are a few squeaky wheels that the court has to deal with, but a prepack can be done very fast, even within - I think the record is something a little over 24 hours. That's unusual. More often, a prepack is may be a couple of months, but they can be done very fast.
INSKEEP: Okay, granting that there is such a thing as a short bankruptcy, then, is there such a thing as a short bankruptcy for a company like General Motors, which employs so many people and has obligations to so many people?
Prof. LEVITIN: That's multiple million dollar question, isn't it? The answer is maybe, that certainly a bankruptcy that is not quick is almost assuredly would be a liquidation for GM.
INSKEEP: Which is what GM has said: If we go into bankruptcy, we'll go out of business. We will not survive.
Prof. LEVITIN: If they go into a traditional freefall bankruptcy, they're -yeah, GM's toast. On the other hand, if GM went in with a prepackaged bankruptcy, that's probably really their only bet at this point, that they can keep getting bailout money, and what that does is it just kicks disaster a little farther down the road. GM's problems are not going to be solved by another 10 billion here or 10 billion there. This is a company that burns through, easily, $2 billion a month, so $10 billion doesn't even get them through a year.
What GM really needs in order to survive is a viable business plan, and that seems to be what they're trying to work out now. I think then bankruptcy could be the means of implementing it. Bankruptcy will not create the business plan. Bankruptcy's just a means of effectuating that business plan. Bankruptcy would let GM reach a deal with the union that might not be consensual with the union creditors.
INSKEEP: In other words, under bankruptcy rules, they can dictate, or the judge can dictate terms to the union.
Prof. LEVITIN: To some degree. There are a lot of safeguards for it, and that would not be - if GM would not have the union on board, that would be a very long and drawn out process. That would preclude a quick bankruptcy. GM - it really needs to have the union signed on to whatever it's going to do if it wants to have a quick bankruptcy. What bankruptcy can do, if GM has the union on board, is it can force the haircut on other creditors.
INSKEEP: People - bondholders.
Prof. LEVITIN: Bondholders in particular. Bondholders are very upset about the thought of bankruptcy because they're not going to do very well in it. Equity is going to almost assuredly be wiped out in a GM bankruptcy.
INSKEEP: Meaning anybody who's a stockholder is gone.
Prof. LEVITIN: Gets - probably going to - gets bupkis. They get nothing. Suppliers - certainly are going to take some sort of hit. GM would probably want to protect its suppliers because it needs to have the suppliers be viable going forward.
INSKEEP: So you sound generally positive on this bit. What would the downsides be, or what would the risks be of taking this course then, the quick bankruptcy?
Prof. LEVITIN: Well, the risk - the first risk is whether you can actually get this arranged. If you can't get all the ducks in a row, this is not going to be a quick bankruptcy.
INSKEEP: And even the president cannot say you guys must all agree. You must have a plan. You must do this.
Prof. LEVITIN: The president can jawbone quite a bit. He can twist some arms, but in the end, he's not a dictator. He can't dictate it. This is not - he can't do this by fiat.
INSKEEP: So that's the first for…
Prof. LEVITIN: No joke intended.
(Soundbite of laughter)
INSKEEP: A little reference to Chrysler, there. Very nicely done. How often does a company reorganize and survive and come out viable after the bankruptcy process, after a prepackaged bankruptcy process?
Prof. LEVITIN: Well, it depends on what you mean by viable - in the short term, quite frequently. In the long term, there's definitely a phenomenon of companies doing what we call - so-called Chapter 22s, or even Chapter 33s, where they do successive Chapter 11 filings.
Prof. LEVITIN: So they file for Chapter 11, and then two, three years later, they're right back there.
INSKEEP: Airlines have done that.
Prof. LEVITIN: They - airlines are notorious for this. This is all - this is a risk. I mean, it depends on the specifics of the company, but bankruptcy's not a cure-all for - by any means.
INSKEEP: So if you were lawyer to one of the parties in this case, would you tell them, go for this, do what you have to do to get through this process? It'll help GM in the end?
Prof. LEVITIN: I don't think they have any other option. Yeah, I think that's the only real chance they have on the table.
INSKEEP: That's the view of Adam Levitin, a law professor at Georgetown University.
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