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White House May Seek "Controlled Bankruptcy" For GM

4904291The Obama administration is weighing a "controlled bankruptcy" for General Motors Corp. if the floundering auto giant cannot meet government standards for viability by June 1, The New York Times reports Wednesday.

The move would fall somewhere between a prepackaged bankruptcy and a potentially chaotic legal battle between the company and creditors. It would involve persuading only some creditors to agree to a plan that would split the company into two pieces, sources familiar with the discussions told the Times.

In most prepackaged bankruptcies, all the creditors must agree terms, but the White House may circumvent that by financing the sales using taxpayer money, reports the paper.

Fritz Henderson, GM's new CEO, indicated Tuesday that tougher government standards have made bankruptcy "more probable" than in the past.

Henderson said GM management was rushing to find ways to stave off that fate. It must slash billions in costs and debt in time for the Obama administration's deadline.

The plan appears to resemble parts of the bank rescue plan – separating the company's liabilities and bad assets from its profitable elements. Some specifics, according to the Times, include:

  • GM filing for prearranged bankruptcy.
  • Selling off valuable assets, such as Cadillac or Chevrolet, to a new company using government financing. This would apparently become GM's new corporate face.
  • Leaving less desirable elements, like Hummer, with the old company.
  • Using revenue from the sales to pay off creditors.

    The White House would hope to get support from the United Auto Workers union, which would likely be asked to make further concessions, but the law allows a judge to approve a sale over creditor objections, according to the Times.

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