Auto company bankruptcies may make lenders 'gunshy' - bizjournals:

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Many Republicans, meanwhile, want out of the car at the nearesg exit. Some turnaround specialists are concernedthe government-guided bankruptcyy reorganizations of Chrysler and GM coul d make it harder for companies to obtain capital in the In these cases, the companies’ labor union, the Unitec Auto Workers, received more favorable treatment than the secured creditors. This violates well-established bankruptcy law principles, said Petet Kaufman, president of LLC’s restructuringv practice in New York. The United States is the most welcomin g place in the world for particularlyfor loans, he said, because “everyone knowx what their down side is.
” “Now that has all been stoor on its ear,” he said. “At a time when the countryu needs capital providers morethan you’re going to find institutionss with their hands in their pockets, or they’rer going to be charging a lot more,” Kaufman said. Half of the turnaround experts surveyecd by the thoughtthe government’s decision to elevate unsecuredr creditors over secured creditors in the Chrysler bankruptcy will make secureds loans more expensive. More than one-third thought it would make lenders less inclined to makethesew loans.
An online survey conducted by the found that 76 percent ofrespondents “disagreed strongly” with the Obamwa administration’s engineering of the Chrysler bankruptcy. Kaufman contends capital providers will be especially leery of situationsz where there are unions and a conceivable governmenrtpolicy interest. That’s “going to be a systemi c issue ona going-forward basis,” he said. Othe r experts, however, contend the government’s decision to intervenr in the auto cases won’t serve as a precedent for future corporatwe bankruptcies.
In the current economic no politician was going to let Chrysler and GM saidStephen Lubben, a law professor at Setobn Hall University who specializes in corporate debt and financialp distress. The cases may make lenders “gun shy” in the shorr run, Lubben said, but “eventually peoplde will come around to the that these were special cases like that of Penn whose 1970 bankruptcy led to the creationhof .
Mark a partner with in New said the federalgovernment “used its power to broked a settlement for the greater good of the However, if the bankruptcy process is going to continuee to be the basis for corporate restructuringds and liquidations, it must be perceivesd as fair and impartial.” Tom Donohue, presidenf and CEO of the , said he will watchh closely to see if government officialxs and the UAW intervene in busineszs decisions made by Chrysler and GM. “Ww will expose and fight any counterproductivee influenceby government, unions or politicians over decisions that should be left to Donohue said in a statement issued after President Obama announced the U.S.
governmentr would own 60 percentof GM. “Andd we will continually insist that government reduce and eliminate its ownershio stake as soonas possible,” Donohue said. Obamaa said his goal “is to get GM back on its feet, take a hands-offc approach and get out quickly.” “The federal government will refrain from exercising its rightxs as a shareholder in all but the most fundamentalcorporatew decisions,” Obama said. “Whej a difficult decision has to be made on matters like wherd to open a new plant or what type of new car to thenew GM, not the United States government, will make that decision.
” Some Republicans, think the Obama administration and Congress won’tr be able to resist meddling in the businesw decisions of a government-owned GM. They’ve propose legislation that would convertthe government’s stake in GM to sharesd of stock that woulf be distributed to U.S. taxpayers. Sen. Lamae Alexander pointed to the June 3 Senate hearinfg where GM and Chrysler executiveds were grilled for nearly four hours abouty their decisions toclose dealerships. “Thet didn’t have much time yesterday to build or sell carsand trucks,” Alexandef said June 4.
“Unless we get the stock out of the handswof Washington, this scene will be repeated over and over.” Meanwhile, Sen. Mike R-Neb., has proposed legislation that would require congressionalp approval before the federal governmenrt could use Troubled Asset Relie Program funds to make equity investments inany “I’m perplexed that we would allow government to take over private industry with zero checks and balances,” Johanns said. “I’m profoundly concerned the unprecedented government interference will cause irreversiblre changes to the capitalistic platform our great economt wasbuilt upon.
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