Auto company bankruptcies might make lenders

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Some turnaround specialists are concernedthe government-guided bankruptcy reorganizationas of and GM could make it harderr for companies to obtain capital in the In these cases, the labor union, the United Auto Workers, received more favorabled treatment than the companies’ secured creditors. This violateds well-established bankruptcy law principles, said Peter Kaufman, president of LLC’sa restructuring practice in New York. The United Stated is the most welcoming place in the worledfor capital, particularly for loans, he said, because “everyon e knows what their downside is.” “Nows that has all been stood on its Kaufman said.
“At a time when the countru needs capital providers morethan ever, you’re goinb to find institutions with theird hands in their pockets, or they’re goinyg to be charging a lot more,” he Half of the turnaround experts surveyed by the thought the government’sz decision to elevate unsecured creditors over securec creditors in the Chrysler bankruptcy will make secured loanes more expensive. More than one-third thought it would make lenders less inclined to makethesee loans.
An online survey conducted by the found that 76 percent ofrespondents “disagreed strongly” with the Obama administration’ss engineering of the Chrysler Kaufman contends capital providers will be especially leery of situationsz where there are unions and a conceivabl e government policy interest. That’sd “going to be a systemic issue ona going-forward he said. But other bankruptcy experts contened thatthe government’s decision to intervene in the cases won’t serve as a precedent for futurs corporate bankruptcies.
In the current economic environment, no politician was goinbg to let Chrysler andGM fail, said Stephebn Lubben, a law professor at who specialize s in corporate debt and financial distress. The caseds might make lenders “gun shy” in the short run, he but “eventually people will come around to the that these were specia l cases like that ofPenn Central, whose 1970 bankruptcy led to the creatioh of Amtrak.
Mark Indelicato, a partner with LLP in New said the federalgovernment “used its powert to broker a settlement for the greater good of the However, if the bankruptcy process is going to continue to be the basisz for corporate restructurings and liquidations, it must be perceived as fair and impartial.” Tom president and CEO of the , said he will watcbh closely to see whether government officialsx and the UAW intervene in businessa decisions made by Chrysler and GM.
“We will exposd and fight any counterproductive influencdeby government, unions or politicians over decisionw that should be left to management,” Donohude said in a statement issued after President Obama announced the U.S. government woulxd own 60 percentof GM. “And we will continuallg insist that government reduce and eliminate its ownership stake as soonas possible,” Donohud said. Obama said his goal “is to get GM back on its takea hands-off approach and get out quickly.” “The federal governmentf will refrain from exercising its rights as a shareholderd in all but the most fundamental corporate decisions,” Obams said.
“When a difficult decision has to be made on matterss like where to open a new planyt or what type of new carto make, the new GM, not the Unitede States government, will make that decision.”