In a few hours I will offer my thoughts and reactions to the General Motors bankruptcy filing and the President’s noon announcement. For now, here is what I have been able to figure out from the White House fact sheet and secondary source reporting through CNBC and the Wall Street Journal. I assume that both sources are being fed directly from the White House, Treasury, and GM, so I think there is a high probability these sources are accurate.
Note that I do not generally intend to become a news source. I will instead focus on analysis. What you see below is a variant of something I whipped up this morning for my old Administration colleagues that I thought I would share with you as well.
In my experience both on the White House and on Capitol Hill, I found that it was sometimes helpful to my principal to collect and group information as you see it below. There are a lot of good reporters, but they sometimes structure their stories in ways that make it hard to understand. TV business news tends to release the information as it comes out. So while you could learn everything below from the WSJ, CNBC, and the fact sheet, I hope that the structure makes it easier to process.
This is the kind of presentation I might have dashed off for President Bush or Senator Lott for a big news item so they would not have to spend time digging through press coverage. This is one of those “fold it up and put it in your inside jacket pocket” memos. Also, as a principal it’s nice to know what you need to know. You can have the confidence that, if you know this information, you have a basic but thorough understanding of what’s going on. (Hint to my Hill friends: feel free to use this for your boss. You just saved an hour.)
- GM’s bankruptcy filing was expected to be at 8 AM EDT in NY Southern District in Manhattan. (CNBC)
- Obama and GM CEO Fritz Henderson are scheduled to hold back-to-back press conferences beginning at noon today. (CNBC)
- They are using the same Section 363 process that Chrysler used. The new GM buys the good parts of the old GM. The old parts are liquidated. (White House fact sheet)
- “would allow a much smaller GM to emerge from court protection in as little as 60 to 90 days.” (CNBC) (This is a guess/spin. How optimistic is it? GM is much harder than Chrysler. -kbh)
- “Al Koch, a managing director at advisory firm AlixPartners, will be appointed chief restructuring officer in charge of liquidating those GM assets” (CNBC)
- “Autos task force will stay in business … shifting to an investment manager role” (CNBC)
In “the new GM,” ownership is:
- 60% of equity goes to the U.S. Government. USG also gets $8.8B in debt and preferred stock.
- UAW’s retiree pension/health plan (the “Voluntary Employee Beneficiary Association”) gets 17.5% of equity, plus:
- warrants to buy another 2.5% of equity;
- a $2.5 B note (three installments, ending in 2017); and
- $6.5 B in perpetual preferred stock (9% coupon).
- Approximately 12% of equity goes to the Canadian (and Ontario?) governments. They also get about $1.7 B in debt and preferred stock.
- Bondholders of old GM get about 10% of the equity, for giving up $27.1 B in unsecured debt. This was approved by bondholders representing 54% of unsecured debt. The other 46% are the biggest risk for the bankruptcy filing. (CNBC, WSJ)
- “Bondholders could take up to 25 percent of GM if it recovers to be worth what it was in 2004, before it began round after round of cost-cutting in what proved to be a failed bid to make up for lost sales.” (I need to understand this better.)
- Secured bondholders expect to be paid face value. (WSJ)
Governance of the new GM
- UAW’s VEBA can select one independent director, but cannot vote its shares or other governance rights(!) (White House fact sheet)
- “Canadian government will have the right to select one initial director.” (White House fact sheet)
- “The U.S. Treasury will also have the right to appoint the initial directors other than those that will be selected by the VEBA and the Canadian government.” (White House fact sheet)
GM gets about $40 B of new cash to help pay its bills during bankruptcy. This is called debtor-in-possession (DIP) financing.
- U.S. Government: $30.1 B in new debtor-in-possession (DIP) financing. (WH fact sheet, CNBC)
- Governments of Canada & Ontario: $9.5 B
NewCo / OldCo
- “The U.S. Treasury does not anticipate providing any additional assistance to GM beyond this [new $30.1 B] commitment.” (White House fact sheet)
- “As a result of this restructuring, GM will lower its breakeven point to a 10 million annual car sales environment. Before the restructuring, GM’s breakeven point was in excess of 16 million annual car sales.” (White House fact sheet)
- “The administration said the goal of the restructuring was to help GM be profitable in a year when the industry sells 10 million vehicles, versus the 16 million it sold in 2007.” (CNBC)
- “GM will continue to honor consumer warranties.” (WH fact sheet)
- GM is being removed from the Dow Jones Industrial Average 30 (“the Dow”), along with Citigroup. They will be replaced by Cisco and Travelers. (CNBC)
Update: If you’re really into this topic, you can read the Administration’s background briefing (for the press) that they held last night.