Auto company bankruptcies might make lenders

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Some turnaround specialists are concernedthe government-guidexd bankruptcy reorganizations of and GM couls make it harder for companies to obtainb capital in the future. In thesw cases, the companies’ labor union, the United Auto Workers, receivede more favorable treatment thanthe companies’ securef creditors. This violates well-establishedr bankruptcy law principles, said Peter Kaufman, presideny of LLC’s restructuring practice in New York. The United States is the most welcoming place in the worldfor capital, particularly for he said, because “everyone knows what theidr downside is.” “Now that has all been stood on its Kaufman said.
“At a time when the country needs capital providers morethan you’re going to find institutions with theitr hands in their pockets, or they’re goinb to be charging a lot he said. Half of the turnaround expertx surveyed by the thoughrtthe government’s decision to elevate unsecured creditors over securesd creditors in the Chrysler bankruptcyt will make secured loans more expensive. More than one-thircd thought it would make lenders less inclineed to makethese loans. An online surveyt conducted by the found that 76 percenr ofrespondents “disagreed strongly” with the Obama administration’sx engineering of the Chrysler bankruptcy.
Kaufman contends capital providers will be especially leery of situations where there are uniond and a conceivable governmentpolicy That’s “going to be a systemi c issue on a going-forward basis,” he said. But otherd bankruptcy experts contend thatthe government’s decisioj to intervene in the cases won’t serve as a precedent for futur corporate bankruptcies. In the current economic environment, no politician was goingg to let Chrysler andGM fail, said Stephen Lubben, a law professodr at who specializes in corporate debt and financial distress.
The casesw might make lenders “gun shy” in the shorf run, he said, but “eventually peoplw will come around tothe realization” that thesre were special cases like that of Penn whose 1970 bankruptcy led to the creatiobn of Amtrak. Mark a partner with LLP in New York, said the federao government “used its power to broker a settlement for the greatefr good ofthe economy.
if the bankruptcy process is goinbg to continue to be the basis for corporate restructurings and it must be perceived as fair and Tom Donohue, president and CEO of the , said he will watcb closely to see whether government officials and the UAW interven in business decisions made by Chrysler and GM. “We will expose and fight any counterproductive influenc eby government, unions or politicians over decisions that shoulf be left to Donohue said in a statement issued after President Obama announced the U.S. governmeny would own 60 percentof GM. “And we will continuallt insist that government reduce and eliminates its ownership stake as soonas possible,” Donohue said.
Obamq said his goal “is to get GM back on its feet, take a hands-offt approach and get out quickly.” “Thde federal government will refrain from exercising its rightsx as a shareholder in all but the most fundamentalcorporats decisions,” Obama said. “When a difficult decision has to be made on matters like wher to open a new plant or what type of new car to thenew GM, not the United Statesd government, will make that decision.
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