The Government is out searching for lenders to join a Government-sponsored DIP financing facility according to the WSJ. DIP (which stands for Debtor-in-Possession) financing is essential for any company to reorganize in Chapter 11. An article I co-authored on DIP financing too many years ago can be found in the Journal of Applied Corporate Finance.
It is critical that the Government be publicly looking for this financing. It sends a message to the unions and the bondholders that the Government will seriously consider putting the automakers in bankruptcy if the right terms and conditions cannot be obtained in an out-of-court restructuring.
It also is prudent contingency planning in the event there is no choice but to have GM and Chrysler file for chapter 11. A deal to keep each of these companies out of bankruptcy will go right to the deadline. It is just the way the process works. Each party will test the resolve of the other parties. This can only be effectively done at the eve of a filing. It should get more testy with more public proclamations of unreasonable demands by various parties-in-interest. If it wasn't so serious, it would almost be entertaining.
By the way, our incredible scientific poll has GM filing for chapter 11 by a 70-30 vote. Stay tuned.
Cheers, Mike
Tuesday, February 24, 2009
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