House to vote on bankruptcy reform on 2/26

by Sundeep Kothari

Atlanta Georgia Bankruptcy Attorney

House to vote on bankruptcy reform

The House is set to vote on a measure to allow bankruptcy judges to modify mortgages for primary home residences on Thursday, 2/26.

Treasury gives $5 billion to GMAC in bailout funds

by Sundeep Kothari

GMAC receives $5 billion in bailout money

The Treasury Dep’t will give $5 billion to GMAC from the $700 billion bank bailout program (TARP). In addition, GM will receive an addition $1 billion in loans to buy equity from GMAC. This $6 billion will allow GMAC to avoid bankruptcy, which would more than likely have also brought down GM into bankruptcy as well.

This money is in addition to the previous $17.4 billion already promised from TARP to GM.

GM owns 49% of GMAC, while the rest is owned by Cerberus.

This money will allow GM and GMAC to survive to the Obama administration, but deep and severe cuts are necessary for GM and GMAC to survive. Toyota couldn’t even make money in this economy, and GM’s cars are generally less well received.

GMAC awaiting approval of debt swap by shareholders to avoid bankruptcy

by Sundeep Kothari

Roswell, Georgia bankruptcy lawyer

GMAC awaiting approval of debt swap

One minute before midnight Friday is GMAC’s deadline for bondholders to swap $38 billion in debt for new bonds that are worth less money — a deal that could help the finance company avert bankruptcy and qualify to become a bank holding company.

Becoming a bank holding company would give GMAC access to financing under the $700 billion government bank rescue fund. The financing company needs about 75% of its bondholders to agree to restructure the debt.

The government has said GMAC must have $30 billion in assets to qualify as a bank holding company. The debt swap is a significant part of the financing arm’s attempt to raise that money.

If it fails to meet that target, bankruptcy looms as a real threat for GMAC, which once was General Motors’ (GM)crown jewel. GMAC has said that failing to become a bank holding company would have dire effects on its business.

Standard & Poor’s said earlier this month that failure would mean “the potential for a bankruptcy filing would be high.”

However, President Bush’s decision last week to use federal financing to help bail out the automakers could be a good sign for GMAC, says Himanshu Patel, an analyst at JPMorgan.

 

“GMAC will probably be safe, regardless of GMAC’s bond-exchange results,” Patel said in a recent research note. “We think Treasury will take the needed steps, in the end, to help GMAC remain solvent.”

So, GM is in good shape, but not totally out of the woods yet. Yesterday, I was reading how Detroit’s unemployment rate right now is at 21%. If the Big 3 had been allowed to go into bankruptcy at this point, that number might have reached 30-40%.

That doesn’t change the fact that the Big 3 still don’t have a realistic plan to make cuts and reorganize to adapt to today’s market. They still are running their companies like it is the 1960s or 1970s or 1980s.

President Bush approves $17.4 billion loan for GM and Chrysler

by Sundeep Kothari

17.4 billion loan approved for GM and Chrysler

“President George W. Bush offered a lifeline to ailing U.S. automakers Friday to keep them operating in one if the worst financial crises since the 1930s.

The automakers will get $13.4 billion in short-term financing, which would come from the government’s $700 billion financial bailout fund. An additional $4 billion could be available in February.

The auto companies must use the funds to become financially sound. If they are not financially viable by March 31, 2009, the loans will be called and all of the funds will be returned to taxpayers.”

Unfortunately the language of financial viability is pretty worthless. If the companies aren’t financially viable by then, and the loans are recalled, then that means these companies would collapse and the workers would lose their jobs.

The only hope that is out there is if management and unions really face reality that their industry is in severe, severe crisis and that without massive concessions by both sides, GM and Chrysler will go under and re-emerge as parts of Ford or foreign companies.

Bush forced to use TARP money for auto bailout

by Sundeep Kothari

Bush to use TARP money

With the collapse of a bailout bill, President Bush is expected to use a portion of the $700 billion Troubled Asset Relief Fund (TARP), the massive federal bailout passed a few weeks prior to the election.

For President Bush, this is proving to be the worst of both worlds. The Democrats were unwilling to go ahead and release the previously authorized $25 billion loan, which was given to help the automakers become more fuel efficient. And the Republicans were unwilling to get a bill passed for the $14 billion bailout.

Now President Bush is forced to do something he didn’t want to do: use the TARP money for the auto dealers. Some Republicans are alleging the UAW refused to compromise on wage cuts because they knew if the bailout bill failed, that President Bush would have no choice but to take some TARP money.

Whatever the case may be, everyone looks bad in this deal. The car industry is quickly using up its political capital. What happens next year if the automakers need more bailout money? What kind of reception will they get from Congress then? Especially if they are coming in with the same problems they have now.

GM has said it will cut 30% of its North American production during the first quarter. This, however, may not be enough. The facts are that American cars are not seen by American consumers to be as good as foreign cars, and that with the badly faltering economy, a lot of consumers simply aren’t buying cars anyway.

If GM doesn’t make massive cuts now, even deeper than the ones they propose, they will come back to Congress and they may find a far less receptive audience.

Congress considers $15 billion bailout for Big 3 automakers

by Sundeep Kothari

Congress mulls $15 billion bailout

Stunned by the loss of 500,000 jobs, the worst month in 34 years, Congress is considering a $15 billion bailout for the automakers.

Speaker Pelosi has dropped her opposition to re-directing a previously passed $25 billion loan to the Big 3 automakers for the development of environmentally better, more fuel efficient cars. This is something that President Bush supported.

There is no support whatsover from Congress to take a portion of that $700 billion and give it to the automakers. But there is enough support to change that loan and release those funds to the Big 3.

Will the Big 3 automakers be forced into bankruptcy?

by Sundeep Kothari

Will the Big 3 automakers be forced to file for bankruptcy?

My prediction is that they will not be.

Majority Leader Harry Reid is saying that currently there are not enough votes to get a bailout bill passed:

Not enough votes

This is true, but Congress has already approved $25 billion to the Big 3 to help them produce more efficient, environmentally improved vehicles. President Bush, some Republicans and some Democrats are pushing that this $25 billion be used instead for a bailout package, instead of the Big 3 taking money from the previously approved $700 billion bailout package from a few weeks ago.

That $25 billion hasn’t been distributed yet, and President Bush is calling for the release of those funds.

But Congress is doing something by not releasing the money: they are forcing the Big 3 and unions to make wholesale changes in their industry: union contracts, benefits, the types of cars that are made. A complete re-evaluation of the entire industry. Congress is using the purse strings of that $25 billion to hold Detroit’s feet to the fire, so to speak.

And Congress so far has forced a lot of change. And more needs to happen, and will happen.

Eventually that $25 billion will be released. And if that money isn’t enough, then Detroit will have to come back to Congress to ask for more. But then Congress can legitimately ask: what changes have you made in this intervening time period.

Without this push, the Big 3 would continue to do the same old, same old.

Which clearly hasn’t worked.