General Motors heads back to court today to seek approval for a speedy exit from bankruptcy protection by selling off its best assets to a new company in which the U.S. government will hold a majority stake.
Judge Robert Gerber plowed through a host of motions Tuesday linked to GM's plan to emerge as a leaner, small company unburdened by old debts and supported by billions in government loans.
Facing a courtroom filled with lawyers representing dozens of creditors objecting to the plan, Gerber tried to keep things moving by warning the "hundreds of lawyers here" that while "I'm gonna keep my cool" he expected "questioning more focused on what is important."
"People seem to have forgotten why we are here, what we're trying to achieve," Gerber said on the first day of the hearing that is expected to last several days.
GM chief executive officer Fritz Henderson was peppered with questions about the automaker's financial problems prior to bankruptcy, the government bailout and how the new company will be structured financially.
He stuck largely to the line of defense presented by GM's lawyers: Bankruptcy was the "only viable solution" to avoid liquidating the largest U.S. automaker.
"Business is doing better," Henderson said during five hours of testimony. "The sales are better than expected, but are still terrible" and are down between 20% and 30% compared with a year ago.
GM has some "good products" in showrooms and is benefiting from a solid marketing campaign and the public's belief that it will rapidly exit bankruptcy, he said.
Gerber could order GM to modify its plan to meet some of the 850 objections mounted by creditors or the automaker could reach a deal outside of court in order to speed up the process. Should Gerber dismiss the objections and grant GM the green light, creditors are given the right to appeal.
But the precedent established by Chrysler's rapid-fire bankruptcy makes it unlikely they will succeed in blocking the automaker's swift emergence.
GM, which filed for bankruptcy protection on June 1 after reaching agreements with its main union and the bulk of its major creditors, is said to be planning to launch the new company in mid July. That would be well ahead of the 60 to 90 day time frame predicted by President Barack Obama's administration, which spearheaded the process.
Chrysler, which is about a third of the size, spent 40 days in bankruptcy protection and even an appeal to the Supreme Court did not block its sale to a new company run by Italy's Fiat.
Like Chrysler, GM's weaker assets will be liquidated through the New York bankruptcy court, but the new GM will not be burdened by the lengthy process. The cost of liquidating GM's remaining assets could surpass the $950 million Treasury department estimate and could be as high as $1.2 billion, Henderson said, adding that the administration is pushing for a speedy emergence. "They're likely concerned about the business status during the bankruptcy process," he told the court.
The U.S. government will own 60.8% of the capital in exchange for some $50 billion in emergency loans, Canada will have 11.7% and a United Auto Workers retiree health care trust fund will hold 17.5%.
Creditors holding GM bonds will swap $27.1 billion in debt for a 10% stake and warrants allowing them to buy an additional 15% stake.
While the hearing could take several days given the number of complaints filed, most observers consider it a mere formality as the plan's approval is expected to be assured.
"There's no suspense at all," said one legal source who has followed the case but is not participating. "It's like Judge Gerber doesn't want the case to face the same difficulties Chrysler had."
Copyright Agence France-Presse, 2009
