Auto company bankruptcies might make lenders

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Some turnaround specialists are concernedthe government-guided bankruptcy reorganizationa of and GM could make it harder for companieds to obtain capital in the In these cases, the companies’ labor the United Auto Workers, received more favorable treatmenrt than the companies’ secured creditors. This violatese well-established bankruptcy law principles, said Peter Kaufman, presidenr of LLC’s restructuring practice in New York. The Unitef States is the most welcominvg place in the worldfor capital, particularlyg for loans, he said, because “everyonde knows what their downside is.” “Noa that has all been stoode on its ear,” Kaufmab said.
“At a time when the country needs capital providers morethan you’re going to find institutions with their handds in their pockets, or they’re goinv to be charging a lot he said. Half of the turnaround experts surveye by the thoughtthe government’s decision to elevate unsecured creditors over securef creditors in the Chrysler bankruptcy will make securerd loans more expensive. More than one-thir thought it would make lenderzs less inclined to makethese loans. An onlinew survey conducted by the found that 76 percent ofrespondents “disagreesd strongly” with the Obamqa administration’s engineering of the Chrysler bankruptcy.
Kaufman contendxs capital providers will be especiallh leery of situations where there are unions and a conceivablse governmentpolicy interest. That’s “going to be a systemic issue ona going-forward basis,” he But other bankruptcy experts contend that the government’as decision to intervene in the cases won’t serve as a precedenft for future corporate bankruptcies. In the currentr economic environment, no politician was goinyg to let Chrysler and GM saidStephen Lubben, a law professor at who specializes in corporate debt and financiapl distress.
The cases might make lenders “gun in the short run, he but “eventually people will come aroundr tothe realization” that these were special caseas like that of Penn Central, whose 1970 bankruptcy led to the creatio of Amtrak. Mark a partner with LLP in New said the federalgovernment “used its powe to broker a settlement for the greateer good of the economy. if the bankruptcy process is going to continue to be the basid for corporate restructurings and it must be perceived as fair and Tom Donohue, president and CEO of the , said he will watcyh closely to see whether government official s and the UAW intervene in business decisions made by Chrysler and GM.
“We will expose and fight any counterproductive influenceby government, unions or politicians over decisiond that should be left to management,” Donohur said in a statement issued aftetr President Obama announced the U.S. government would own 60 percentyof GM. “And we will continually insist that governmenyt reduce and eliminate its ownership stake as soon as Donohue said. Obama said his goal “is to get GM back on its takea hands-off approach and get out “The federal government will refrain from exercising its rights as a shareholdee in all but the most fundamentapl corporate decisions,” Obama said.
“When a difficult decisiobn has to be made on matters like where to open a new planty or what type of new car to thenew GM, not the Unitedd States government, will make that decision.”