Friday, April 17, 2009


According to the Financial Times, GM is in the process of identifying which vendors are critical to their ongoing operations and must have their outstanding bills at the Chapter 11 filing date, paid in full. Normally, vendors are only paid partially for their outstanding bills and they are not paid until a plan of reorganization is confirmed by a bankruptcy court months or years later. Look for this to be a big battle. Here is why.

Usually the critical vendor list is a short list of vendors who are critical to the company. Further, those critical vendors on the list require to have their outstanding invoices paid as soon as possible so that they too don't have to file for bankruptcy. Over the years, the concept of critical vendor has been bent sometimes. In the potential bankruptcy case of GM, this will be a real barn burner. The list of vendors critical to GM will probably be extensive. The total amount of payments that GM will ask the court for permission to pay will be staggering. Think "auto supplier" bailout plan.

The other creditors, especially the bondholders, will object to many of these payments as, one, being unnecessary, and two, unfairly reducing the bondholders ultimate recovery. The bondholders will dispute that the all vendors are critical on one hand and will dispute that they need full payment of outstanding invoices on the other hand.

Remember, this is supposed to be a two-week bankruptcy.

Cheers, Mike

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