'New GM' to emerge from bankruptcy

Ailing automaker seeks court protection today
June 01, 2009 Tony Van Alphen
BUSINESS REPORTER

Canadian taxpayers will provide reeling General Motors Corp. with $9.5 billion (U.S.) in aid and take a 12 per cent stake in the once mighty automaker, which will seek court protection from creditors today.

In the biggest corporate rescue package in Canadian history, Prime Minister Stephen Harper and Ontario Premier Dalton McGuinty will announce in Toronto this afternoon the repayable loan and what taxpayers will get in preferred and common stock under a restructuring plan to save the automaker and turn it into the "New GM."

GM, once the biggest company in the world, will file for court protection under Chapter 11 of the U.S. Bankruptcy Code in New York but it hopes to emerge in 60 to 90 days. It is not clear if GM of Canada Ltd. will file for protection here.

Protection in the U.S. will be automatic. A judge will decide during the 90 days who all the creditors are and will resolve disputes about how much holdout GM bondholders will get for their debt, payments to other creditors and expenditures by the company.

Under the plan, the money from both governments will be used during the bankruptcy process and subsequent transition into a healthy company.

U.S. President Barack Obama will announce about $30.1 billion in extra loans for the company. In return, American taxpayers will get $8.8 billion in debt and a 60 per cent interest in the company. In addition to its 12 per cent stake in the company, the Canadian government will get $1.7 billion in debt.

There will be a new GM board with a minority of existing directors and a majority of new members, including one from Canada.

Obama and Harper will emphasize at separate news conferences that the aid should put GM on sound financial footing with a viable plan that takes into account conservative projections for the future of the industry.

They will also say there are no plans for further aid and it is their intent to sell government-held stock in GM as soon as appropriate.

"The government has no desire to own equity stakes in a company any longer than necessary," one U.S. official said last night.

The moves come after GM submitted a new restructuring plan to the governments with more concessions from stakeholders, additional plant closures and lower projections on sales and market share.

Under the North American government aid package, Ottawa and Ontario will contribute $9.5 billion or $10.58 billion (Canadian), far more than the $3 billion the two governments promised in December. At that time Harper acknowledged taxpayers would probably need to provide more help.

The U.S. has already pumped $19.4 billion (U.S.) into GM, whose sales have plunged in the past year.

Government leaders in both countries have said that allowing the collapse of GM and rival Chrysler would push the Canadian and U.S. economies into a much deeper recession and cost millions of jobs.

GM will announce 11 more plant closures and idle three operations as part of the restructuring. However, industry insiders say the moves will not affect Canadian operations.

Chrysler LLC, also surviving on a government lifeline, gained court protection in the U.S. last month and hopes to emerge within days in a partnership with Italian automaker Fiat SpA. Their Canadian subsidiary did not seek court protection.

GM has not indicated it will stop production in the U.S. or Canada during bankruptcy proceedings.

Source;
http://www.thestar.com/business/article/643419