DETROIT Feb 9 A bankruptcy filing by General
Motors Corp (GM.N) could allow the struggling automaker to
reduce its debt more aggressively than an out-of-court
restructuring and might not be as damaging as it would have
been just a few months ago, an analyst said on Monday.
"We think the damage to the enterprise of a GM bankruptcy
today is notably less than it would have been a few months ago,
largely because of public desensitization to a bankrupt
carmaker," JP Morgan analyst Himanshu Patel said in a note for
Patel's note raises the possibility by a prominent Wall
Street analyst of the renewed threat of a bankruptcy by GM or
Chrysler, a risk many observers believe had been sharply
reduced by the government bailout.
GM, like its smaller rival Chrysler LLC [CBS.UL], faces a
Feb. 17 deadline to submit new restructuring plans to the U.S.
government under the terms of the $17.4 billion rescue provided
to the struggling automakers.
GM has said it is aiming to reduce its unsecured U.S. debt
by about two-thirds from nearly $28 billion to $9 billion. The
company also plans to halve the $20 billion it has promised to
a health care trust fund affiliated with the UAW by offering
equity instead of cash.
But Patel said the diminished threat of a bankruptcy filing
by GM appeared to have removed a key incentive for bondholders
to offer concessions.
"After the GM bailout, GMAC received aid, GMAC received
bank holding status without achieving required funding levels
(and) Chrysler and its (financing company) received aid," Patel
said. "All of these steps by the government were likely to have
"POLITICAL LIGHTNING ROD"
Patel said that if GM fails to win substantial concessions
from bondholders and the UAW, the bailout could become "a
political lightning rod" for the Obama administration.
"We are increasingly thinking that such a development might
force the White House to more seriously consider allowing
GM/Chrysler to go into bankruptcy," he said.
GM has repeatedly ruled out seeking bankruptcy protection,
saying such a step would scare off consumers, cause its
revenues to plummet and risk that a Chapter 11-style
restructuring would end up as a liquidation of its assets.
But some critics of the U.S. bailout for the auto industry
have said that the government could provide bankruptcy
financing for GM or Chrysler and allow them to win deeper
concessions from creditors and the union.
The U.S. Treasury has retained two law firms with extensive
bankruptcy experience and the investment bank Rothschild to
advise officials on the taxpayer-backed restructuring of GM and
Chrysler. One of the scenarios those advisers will consider
will be a government-assisted bankruptcy filing, a person with
direct knowledge of the work has said.
Another of the other immediate priorities will be working
out an agreement between other creditors and the government
that would provide senior status to the public funding, a
second person involved in the discussions said.
JP Morgan's Patel said a bankruptcy filing by GM would
likely cut the automaker's debt by over 60 percent compared
with just a 25 percent cut in indebtedness under an
(Additional reporting by Jui Chakravorty in New York; Editing
by Brian Moss)