FINANCIAL CRISIS 2007

GM Emerges From Bankruptcy

July 10th, 2009 — 8:54pm

GM has exited bankruptcy with a new name General Motors Co. The restructuring took 39
days after the company was forced into Chapter 11 protection on June 1. The new  GM
consists of 4 brands with 20% fewer salaried employees and 35% fewer US executives. US
taxpayers own 60.8% of the new GM. A trust for United Auto Workers’ retiree medical bills
has 17.5% of the company; the Canadian and Ontario governments have 11.7%; and the old
GM has 10 percent. GM owes $11 billion  to the government excluding $9 billion in
preferred stock. Total obligations were cut by more than $40 billion, mostly in unsecured
debt and liabilities for the UAW health-care fund. While being leaner and less debt-laden will
certainly help GM, it’s still unclear how GM will fare in terms of winning market share.
There still seems much to do for GM to revamp its product rollouts to compete with its
foreign rivals.

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July 10 (Bloomberg) — General Motors Co., a new company majority-owned by the U.S.
government, emerged from the remains of bankrupt General Motors Corp. by taking over the
best assets of the biggest U.S. automaker. GM now consists of four U.S. brands, has about
$11 billion in U.S. debt and will be run by a smaller corps of executives, the Detroit-based
company said today. It finished restructuring in 39 days, three days faster than Chrysler
Group LLC. The birth of the new automaker is a victory for President Barack Obama’s
administration and Steven Rattner, the Treasury’s chief auto adviser, because the company
was formed faster than the government predicted. GM was forced into Chapter 11 protection
on June 1. “This restructuring is a lot of what GM has been trying to look like for years now,”
said Aaron Bragman, an analyst at IHS Global Insight Inc. in Troy, Michigan. “What
bankruptcy has done is allowed them to sweep away a lot of undesirable things like debt and
uncooperative labor contracts.” Salaried employment will fall by 20 percent, GM said, and
the number of U.S. executives will shrink by 35 percent to help meet Chief Executive Officer
Fritz Henderson’s goal of shedding management layers to speed decision making. Among the
positions being eliminated is that of North American president, now held by Troy Clarke, a
group vice president. GM didn’t say whether Clarke would remain with the new company.

Lutz’s Role

Bob Lutz, GM’s former vehicle czar, returns as vice chairman, responsible for “all creative
elements of products and customer relationships,” the company said. Lutz, 77, will report to
Henderson and be part of a new executive committee. He had been scheduled to retire at the
end of this year. New Chairman Ed Whitacre, the retired CEO of AT&T Inc., will preside
over a board that is being reconstituted at the direction of Obama’s auto task force.
Administration officials said when GM filed for bankruptcy that the new company would
take 60 to 90 days to create. “We all want to win, we are going to win,” Whitacre, 67, said at
a press conference in Detroit as he took over from interim chairman Kent Kresa. The dealer
ranks will shrink to 3,600 as the new company operates only its Chevrolet, Cadillac, Buick
and GMC brands in the U.S. GM is dropping Pontiac, selling Hummer and Saturn and
working to unload Sweden’s Saab.

Sale Proceeds

General Motors Co., not the old GM, will keep the proceeds from the Saturn and Hummer
sales, Henderson said at the news conference. The old GM will wind up with assets including
16 abandoned plants, including contaminated factory sites, and a 9-hole golf course in New
Jersey. Those will be disposed of by the bankruptcy estate, which is to be run by Albert
Koch, and funded with $1.175 billion from the U.S. Treasury. Motors Liquidation Co. is the
name of the entity that remains in Chapter 11. GM listed $176.4 billion in global liabilities
when it sought court protection. U.S. taxpayers own 60.8 percent of the new GM. A trust for
United Auto Workers’ retiree medical bills has 17.5 percent of the company; the Canadian
and Ontario governments have 11.7 percent; and the old GM has 10 percent. GM said its $11
billion in U.S. debt excludes $9 billion in preferred stock, and added that the figure “could
change under fresh-start accounting.” Total obligations were cut by more than $40 billion,
mostly in unsecured debt and liabilities for the UAW health-care fund, GM said.

Going Public

“We expect to take the company public again as soon as practical, starting next year, and to
repay our government loans as soon as possible,” said Henderson, 50, who got the job in
March when the government asked CEO Rick Wagoner to step aside. GM’s manufacturing
footprint will shrink in the U.S. to 34 assembly, powertrain and stamping plants by the end of
2010, a decrease from 47 in 2008, according to the company. By the end of this year, U.S.
employment will shrink to 64,000, 30 percent fewer jobs than on Dec. 31. Slashing debt and
operating costs is part of Henderson’s strategy to return to profit after $88 billion in losses
since 2004, when GM last posted an annual profit. He’s facing the worst U.S. auto market
since the early 1980s and a streak of monthly sales declines dating to October 2007.

‘PR and Marketing’

“There’s a lot of PR and marketing that needs to take place,” said Erich Merkle, an
independent auto analyst based in Grand Rapids, Michigan. “Once you go into bankruptcy, it
doesn’t necessarily help change the perception of the company in the minds of the
consumer.” A “Tell Fritz” Web site will be part of GM’s outreach to customers. “Best-in-
class” vehicles will be GM’s goal, Henderson said, and development of advanced batteries
will be a priority. The Chevrolet Volt electric car, whose development was spearheaded by
Lutz, is due in showrooms by the end of 2010. “Bankruptcy did not change the cars that
General Motors dealers sell, and that’s going to be what generates revenue and pays down
debt,” said Maryann Keller, president of Maryann Keller & Associates in Stamford,
Connecticut. “The cars they were building when they went into bankruptcy are the same that
they had today.”

Task Force Role

GM joins Chrysler in rushing through government-backed restructurings forced on the

companies by Obama’s task force as their cash evaporated because of slumping sales.
Chrysler, the third-largest U.S. automaker, filed for Chapter 11 on April 30 and left court
protection on June 10 under an alliance with Italy’s Fiat SpA. The Treasury helped bankroll
the automakers’ reorganizations, with $65 billion for GM and $12 billion for Auburn Hills,
Michigan-based Chrysler. GM’s exit drew praise from congressional allies and scorn from
critics of the federal role in the industry’s overhaul. “The new company is poised to flourish
and once again dominate the automobile marketplace,” Representative John Dingell, a
Michigan Democrat, said in a statement. “Today is a day on which we can all feel good about
for GM.” Representative Jeb Hensarling, a Texas Republican and member of the panel that
oversees the Troubled Asset Relief Program used to assist the automakers, repeated his
objections to the government’s involvement. “It’s amazing how fast a company can emerge
from Chapter 11 when you inject $40 billion of involuntary taxpayer capital into the process
and trample over the rights of creditors in an unprecedented fashion,” he said in a statement.

Comment » | Financial News

GM Files Bankruptcy
June 1st, 2009 — 10:21pm

GM files for bankruptcy protection in the US, reporting $82.3 billion in assets and $172.8
billion in liabilities. GM is the third-largest bankruptcy in U.S. history, ranked by total assets
listed in the initial filing, after Lehman and WorldCom. The filing  marks GM’s failure to
convince a government auto task force that it could reorganize out of court through debt and
cost-cutting. GM has more than 100,000 creditors, and unsecured creditors will recover some
assets in the reorganization. Before declaring bankruptcy, GM received $20.57 billion in U.S.
Treasury loans and will receive an additional $30 billion, with another $9.5 billion from the
Canadian government. The U.S. plans to convert much of its $50 billion of loans to a 60
percent stake in the new entity. Aside from the U.S. government’s equity share, a worker
health- care fund will get a 17.5% stake and the Canadian governments will take 11.7%.
Bondholders and other unsecured creditors would be eligible for 10% and warrants to buy
another 15%. GM’s bankruptcy is a clear message that the financial crisis has spilled over to
the real economy. The government’s role in the bankruptcy has indicated its resolve to
combat the economic crisis.

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June 1 (Bloomberg) — General Motors Corp., the world’s largest carmaker until its 77-year
reign ended last year, filed for bankruptcy protection in the U.S. with a plan to create a 21st-
century company that can compete in world markets. GM reported $82.3 billion in assets and
$172.8 billion in debt. The U.S. government will bankroll the transformation of the 100-year-
old automaker, a victim of tumbling sales and higher gas prices. The U.S. plans to convert
much of its $50 billion of loans to a 60 percent stake in the new entity. Today’s filing in New
York coincided with a deadline for GM to convince a government auto task force that it could
reorganize out of court through debt and cost-cutting. “It’s a bit like the Titanic sinking,” said
Stephen Pope, chief global strategist at Cantor Fitzgerald in London. “This is a step they
should have taken more than a year ago, which could have put them in much better shape.”
GM is the largest manufacturer to file for bankruptcy, surpassing Chrysler LLC. Detroit-
based GM plans to launch a new company in 60 to 90 days, armed with vehicles from its
Cadillac, Chevrolet, Buick and GMC units for the U.S. market. The court will supervise the
sale or liquidation of unprofitable brands, such as Saturn and Hummer, and at least 11
unwanted factories.

Lyondell Judge

GM said it has more than 100,000 creditors, and that unsecured creditors will recover some
assets in the reorganization. Company operations outside the U.S. weren’t included in the
petition. The case was assigned to U.S. Bankruptcy Judge Robert Gerber in Manhattan, who
also presides over the bankruptcies of Lyondell Chemical Co. and BearingPoint Inc. He
presided over the bankruptcy of Adelphia Communications Corp. as well. “Today marks a
defining moment in the reinvention of GM,” said company President and Chief Executive
Officer Fritz Henderson. “The economic crisis has caused enormous disruption in the auto
industry.” GM listed in its petition as top creditors Wilmington Trust Co., representing
bondholders owed $22.8 billion; International Union, the United Automobile, Aerospace and
Agricultural Implement Workers of America, owed $20.6 billion; and Deutsche Bank AG,
representing bondholders owed $4.44 billion. The Unofficial GM Dealers Committee, which
said it represents more than 6,000 GM dealers in the U.S., filed a notice that it will take part
in the bankruptcy litigation.

GM Facility

One idle GM facility in the U.S. will be retooled to make small, fuel-efficient cars as part of
an agreement with union workers, GM said May 29. GM’s Saab unit is reorganizing in
Sweden. The German government picked Magna International Inc., a Canadian car-parts
maker, to buy GM’s Opel unit. The GM Chapter 11 petition filed today in the U.S.
Bankruptcy Court for the Southern District of New York makes the carmaker’s
reorganization the third-largest bankruptcy in U.S. history, ranked by total assets listed in the
initial filing, after Lehman Brothers Holdings Inc. and WorldCom Inc. “Any suggestion that
an American corporate icon like GM could file for bankruptcy would have been laughable a
few years ago,” said Lynn Hiestand, a lawyer specializing in restructuring with Skadden,
Arps, Slate, Meagher & Flom LLP. Chrysler’s April 30 filing listed $39 billion in assets. The
Auburn Hills, Michigan-based carmaker plans to transfer most of its assets to a new entity
run by Italy’s Fiat SpA. Another bankruptcy judge in New York approved that deal last night.

Declaring Bankruptcy

Before declaring bankruptcy, GM received $20.57 billion in U.S. Treasury loans, according
to the court filing today. Administration officials said yesterday the government would
advance $30 billion more, with another $9.5 billion from the Canadian government. A GM
statement today showed consolidated debt in the new company of $17 billion, excluding
liabilities such as a workers’ healthcare trust, down from $54.4 billion in March. The filing
put the new-entity loan total from the U.S. and Canadian government at as much as $65
billion. Aside from the U.S. government’s equity share, GM’s statement called for a worker
health-care fund to get a 17.5 percent stake and the Canadian governments to take 11.7
percent. Bondholders and other unsecured creditors would be eligible for 10 percent and
warrants to buy another 15 percent. There would be no initial public trading of the shares,
some of which will be given to the Canadian government in exchange for loans, an
administration official said last week. The company might remain private for as long as 18
months, said the official, who asked not to be identified.
Larger Than Chrysler

GM, being larger than Chrysler, faces more obstacles in mopping up creditor claims that
remain in bankruptcy after the streamlined company is created. Reeling from almost $88
billion in losses since 2004, GM may not return to profitability if U.S. vehicle sales are below
10 million a year, an amount the government said a new GM will need to break even. The
company has $22 billion in bond debt and $20.6 billion in UAW obligations, according to
court papers. Of GM’s creditors, Starcom MediaVest Group, the automaker’s largest trade
creditor, is owed $121.5 million, according to the bankruptcy filing. GM said it owed former
parts-unit Delphi Corp. $110.9 million. Other key parts suppliers owed money include Robert
Bosch GmbH, owed $66.2 million; Lear Corp., owed $44.8 million; and Johnson Controls
Inc., owed $32.8 million. Magna International Inc., a Canadian car-parts maker leading a
group that may buy GM’s Opel unit, is owed $26.7 million, according to court papers.

U.S. Stake

GM today filed a request to sell most of its assets to a Treasury-sponsored entity that will
hold the government’s stake in the company. GM’s board of directors said in court papers
that an asset sale to the Treasury is “expedient.” Of the government funding, “approximately”
$30.1 billion in new money will be advanced by the Treasury, according to the filing. GM
said in court papers that it has no objections to a bankruptcy by its Canadian unit. GM’s
Saturn LLC and Saturn Distribution Corp. also sought court protection today. The Chapter 11
petitions are the “only opportunity for preserving” the Saturn brand, according to the filings.
Saturn’s board approved the sale of its assets to the U.S. Treasury, according to court papers.
Today’s filing will trigger credit-default swaps protecting about $3.1 billion of GM debt, in
the biggest settlement of the derivatives since September’s collapse of Lehman Brothers.
Pricing reflected the risks last week as dealers charged about $8.7 million upfront and
$500,000 annually to protect $10 million of debt.

Global Liabilities

GM had global liabilities of $176.4 billion as of Dec. 31, 2008. Banks such as JPMorgan
Chase & Co. secured GM’s revolving loan of about $4.5 billion with inventory, receivables
and factories, also providing a $1.5 billion term loan. The face value of its bonds was $27
billion. The automaker agreed to buy back ownership of Delphi plants in Wyoming,
Michigan; Lockport and Rochester, New York; and Kokomo, Indiana, according to a Delphi
statement. GM’s North American sales were $86.2 billion in 2008, compared with $34.4
billion in Europe, $20.3 billion in Latin America, Africa and the Middle East, and $17.8
billion in the Asia Pacific region, according to a regulatory filing. GM sales dropped 33
percent in April.

William Durant

The automaker was founded in 1908 by William “Billy” Durant, who bought more than 20
car companies before being ousted in a 1920 bailout by Pierre Du Pont and J.P. Morgan. By
the 1960s, GM controlled more than half the U.S. vehicle market. In 2008, it sold only 8.35
million cars worldwide, losing its place as the world’s No.1 automaker to Toyota Motor
Corp. as customers opted for the Japanese carmaker’s fuel- efficient Corolla and Camry
brands instead of GM’s light trucks and Hummers. GM’s shares traded at less than a dollar
last week after Bloomberg News reported it would file for bankruptcy by today. Lehman filed
the biggest bankruptcy in September, listing assets of $639 billion. WorldCom collapsed in
2002 with assets of $103.9 billion. GM reported $82.3 billion in assets. U.S. Treasury loans
to GM topped $20.6 billion, the company said in a filing today. Its second- and third-largest
secured creditors were listed as banks led by Citigroup Inc. and JPMorgan Chase & Co., with
$3.87 billion and $1.49 billion in claims, respectively, followed by Export Development
Canada, with $400 million, and GELCO Corp., with $125 million.

Law Firms

GM’s bankruptcy petition was filed by Harvey Miller and Stephen Karotkin of the New York
law firm Weil Gotshal & Manges LLP, which is also advising Lehman. The automaker’s
primary bankruptcy counsel is Weil Gotshal. GM is also represented by Jenner & Block LLP
and Honigman Miller Schwartz and Cohn LLP as counsels. Cravath, Swaine, & Moore LLP
is providing legal advice to the GM board of directors. GM’s restructuring adviser is AP
Services LLP and its financial advisors are Morgan Stanley, Evercore Partners and the
Blackstone Group LP. GM’s $3 billion of 8.375 percent bonds maturing in 2033 climbed 4
cents to 14.5 cents on the dollar at 12:12 p.m. in New York, according to Trace, the bond-
price reporting system of the Financial Industry Regulatory Authority. The debt has risen
from a record low of 4.5 cents on May 14. GM rose 17 percent, or 13 cents, to 88 cents at
12:25 p.m. in New York Stock Exchange composite trading.

The New GM

The New GM will launch several vehicles in 2009 and 2010, the company said, including the
Chevrolet Camaro, the Buick LaCrosse, a midsize sedan, the Cadillac SRX and CTS Sport
Wagon, the Chevy Equinox, GMC Terrain and the Chevy Cruze, GM’s “new global compact
car.” Also scheduled for production is the Chevy Volt, “an extended-range electric vehicle
that can travel up to 40 miles on battery power alone with the extended-range capability of
more than 300 total miles,” the company said. Following its bankruptcy petition, GM filed
“first day” motions seeking Judge Gerber’s permission to spend funds so as to continue
business operations while under court protection.

Honoring Obligations

These include honoring obligations to employees and retirees, continuing customer programs
including warranties, fulfilling financing agreements and making payments to “essential
suppliers and logistics providers,” GM said. The Chapter 11 proceeding will slash GM’s
consolidated debt from $54.4 billion in March to only $17 billion for the new entity, GM said
in a statement. The number excludes liabilities such as its obligations to the employee
healthcare trust. “The gravity of the circumstances cannot be overstated,” GM said in court
papers. “The business and assets to be transferred are extremely sensitive and will be subject
to major value erosion unless they are quickly sold and transferred to New GM.” The
bankruptcy transaction, the automaker said, “furthers public policy by avoiding the fatal
damage to the industry that would occur if New GM is unable to immediately commence
bankruptcy-free operations.” The case is In re General Motors Corp., 09-50026, U.S.
Bankruptcy Court for the Southern District, New York (Manhattan).