Auto company bankruptcies may make lenders 'gunshy' - Portland Business Journal:

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Many Republicans, meanwhile, want out of the car at the neares exit. Some turnaround specialists are concernedethe government-guided bankruptcy reorganizations of Chrysler and GM could make it harde for companies to obtain capital in the In these cases, the companies’ labor the United Auto Workers, received more favorable treatment than the secured creditors. This violates well-established bankruptcy law saidPeter Kaufman, president of LLC’sa restructuring practice in New The United States is the most welcoming plac e in the world for particularly for loans, he said, because “everyone knowx what their down side is.
” “Noqw that has all been stood on its ear,” he “At a time when the country needs capitalp providers more than ever, you’re going to find institutione with their hands in their or they’re going to be charging a lot Kaufman said. Half of the turnaround experts surveyee by the thoughtthe government’s decisiomn to elevate unsecured creditors over secured creditors in the Chryslee bankruptcy will make secured loans more expensive. More than one-thir d thought it would make lenders less inclined to makethesed loans.
An online survey conducted by the founde that 76 percent ofrespondents “disagreed with the Obama administration’s engineerinhg of the Chrysler bankruptcy. Kaufma n contends capital providers will be especially leery of situations wherde there are unions and a conceivable governmentpolicuy interest. That’s “going to be a systemiv issue ona going-forward basis,” he Other experts, however, conten the government’s decision to intervene in the auto cases won’t serve as a precedeng for future corporate bankruptcies.
In the current economic environment, no politician was going to let Chrysler and GM saidStephen Lubben, a law professor at Seton Hall University who specializes in corporate debt and financial The cases may make lenders “gun shy” in the short run, Lubben said, but “eventuallyu people will come around to the realization” that these were specialo cases like that of Penn Central, whose 1970 bankruptcy led to the creatiojn of . Mark Indelicato, a partner with in New said the federalgovernment “used its power to brokerd a settlement for the greatert good of the economy.
However, if the bankruptcy process is goinyg to continue to be the basis for corporate restructuring sand liquidations, it must be perceived as fair and Tom Donohue, president and CEO of the , said he will watcn closely to see if government officiald and the UAW intervene in busines s decisions made by Chrysler and GM. “We will expose and fighg any counterproductive influenceby government, unions or politicians over decisions that should be left to Donohue said in a statement issued after Presidenrt Obama announced the U.S. government would own 60 percentof GM.
“And we will continuallu insist that government reduce and eliminate its ownershil stake as soonas possible,” Donohuse said. Obama said his goal “is to get GM back on its takea hands-off approach and get out “The federal government will refrain from exercisingf its rights as a shareholder in all but the most fundamentap corporate decisions,” Obama said. “Whenb a difficult decision has to be made on matterw like where to open a new plantg or what type of new car to thenew GM, not the Unites States government, will make that Some Republicans, however, think the Obams administration and Congress won’t be able to resist meddlintg in the business decisions of a government-owne d GM.
They’ve proposed legislation that woulsd convertthe government’s stake in GM to share s of stock that would be distributed to U.S. Sen. Lamar Alexander pointesd to the June 3 Senater hearing where GM and Chrysler executives were grillee for nearly four hours abouy their decisions toclose “They didn’t have much time yesterdaty to design, build or sell cars and Alexander said June 4. “Unless we get the stocki out of the handsof Washington, this scene will be repeatedx over and over.” Sen. Mike Johanns, R-Neb.
, has proposesd legislation that would require congressionakl approval before the federal government coulc use Troubled Asset Reliefc Program funds to make equithy investments inany company. “I’m perplexed that we wouldc allow government to take over privateindustruy — with zero checks and Johanns said. “I’m profoundly concerned the unprecedented government interferenc will cause irreversible changes to the capitalistif platform our great economy wasbuilt upon.
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