Monday, April 13, 2009


CNBC, amongst others, has reported in this article that the Treasury has instructed GM to prepare for a quick bankruptcy. What does that mean?

First of all, I don't know how a two week bankruptcy can occur for GM. And I have been involved in a two week bankruptcy. A number of years ago, I worked on Abbott Dairies located in Philadelphia. Farmland Dairies had entered into an agreement to buy Abbott just prior to Abbott filing for bankruptcy. Abbott closed down for a week and the bankruptcy judge held an auction. A week later Abbott was sold to Farmland.

In this situation there is unlikely to be a bidder for GM in whole. And if there were buyers for GM in parts, it would take much longer than two weeks. So, the thought might be that the so-called good assets and related operating liabilities would go into a new entity called "Newco". The equity of Newco would probably then be issued and held by the bankrupt estate holding all of the 'bad assets' and all the liabilities. The equity might then be held until it can be valued as part of a plan of reorganization that would be voted on by all the claimants. That will probably take over a year and the actually resolution of all the assets and liabilities remaining will probably take years.

More to come on this groundbreaking bankruptcy as events unfold. Check out other article references in my Twitter comments.

Cheers, Mike

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