GM bankruptcy wrangling in 3rd day
Creditors continue to press against automaker's plan to shed old debt and create new company owned largely by U.S. government.
301 Moved Permanently
NEW YORK (CNNMoney.com) -- General Motors returned to bankruptcy court Thursday seeking approval of its plan to restructure and create a "new GM."
Judge Robert Gerber reconvened for a third day after Wednesday's session continued into the evening.
Wednesday hearing included the testimony of Harry Wilson, a member of the auto team that is helping GM and the U.S. Treasury with the bankruptcy process.
Wilson, who has made a career out of investing in distressed firms, said the government has set a July 10 deadline for the restructuring plan to be completed.
"This business can not withstand a process of uncertain duration," Wilson said. "GM was far too large, too complex and too complicated to survive a [routine] Chapter 11 process."
Mark Salzberg, an attorney with Washington-based Patton Boggs, representing unsecured bondholders of GM, asked Wilson a series of questions about the reasoning behind leaving bondholders out of the bankruptcy process.
Wilson said that one of the "strategic benefits" of a 363 sale, in which the preferred assets of the old GM are transferred to the new GM, is that "consent of bondholders was not required."
Wilson said that there were other benefits, including "speed, certainty and the ability to leave liabilities that did not have any benefit to the enterprise."
New GM: The Detroit-based automaker, which filed for court protection on June 1, wants to use bankruptcy to create a new company and shed crushing debt and expensive contracts.
Under the plan, U.S. taxpayers would end up owning 60% of the new GM, with other stakes held by Canadian governments, bondholders and the United Auto Workers union.
Holders of $27 billion in GM bonds would get stock in the reorganized company, as will a union-controlled trust fund that will take stock rather than the $20 billion in cash it had been owed to pay future retiree health care costs. Those 650,000 retirees will have their coverage reduced.
GM plans to close more than a dozen factories, drop U.S. brands and shut down up to 40% of its network of 6,000 dealerships.
A successful and swift move through bankruptcy is crucial to GM's restructuring and a key test of the Obama administration's efforts to rescue GM and Chrysler.
Chrysler's bankruptcy was approved on June 1, just hours before GM entered Chapter 11. An attempt by creditors to block the Chrysler bankruptcy was turned back by the U.S. Supreme Court.
On Friday, in a move that could smooth its restructuring, GM filed documents in U.S. Bankruptcy Court in New York saying that it had agreed to accept legal responsibility, post-bankruptcy, for drivers who are injured by vehicle defects in old cars.
'Business is doing better': General Motors is trying to turn itself around amid slumping auto sales and a severe recession.
On Tuesday, GM's chief executive testified that the company's June sales were stronger than expected -- in part because the bankruptcy process is going swiftly.
"Business is doing better for a number of reasons, one of which being that this process will be quick," said General Motors CEO Fritz Henderson.
In 2008, GM announced its largest-ever annual loss of $38.7 billion. The company has $27 billion in debt. In May, its stock slipped below $1 a share for the first time since the Great Depression.
Lawyers representing a variety of claims against GM -- including asbestos-related and consumer -- subjected Henderson to a barrage of questions in testimony. They wanted to know why clients had been left behind in the bankruptcy process. Henderson said the decision to leave the claims out of the bankruptcy process was concluded during negotiations with the U.S. Treasury.