Was There a Bankruptcy Alternative for the Automakers?

[Purveyor]

Some months ago, I predicted that we would finally move on from the overheated rhetoric surrounding the automotive bankruptcy cases. After all, even Paul D. Ryan supported the Obama administration on this point.

Boy, was I wrong.

--CLIP
The dispute between the Obama and Romney campaign turns on a 2008 opinion article that Mitt Romney wrote in The New York Times entitled “Let Detroit Go Bankrupt.” The Obama campaign focuses on the title, the Romney campaign on the end of the piece, where he urges that the auto companies go through a “managed bankruptcy.”

Neither campaign disputes the need for bankruptcy in the Chapter 11 sense. The crucial issue is whether Mr. Romney’s article was actually advocating something like bankruptcy in the Chapter 7 sense: appoint a trustee and liquidate.

--CLIP
That would have been a perfectly viable plan in 2006 or early 2007, when syndicated debtor-in-possession loans were still widely available. These would have been very large loans, but it’s not impossible that they could have been arranged.

The question is whether this would have been viable in late 2008 or early 2009, and there I think we have to say that the answer is plainly “no.”

MORE...

http://dealbook.nytimes.com/2012/10/23/was-there-a-bankruptcy-alternative-for-the-automakers/

October 17, 2008 - 'DIP' Loans Are Scarce, Complicating Bankruptcies


By JEFFREY MCCRACKEN and PAUL GLADER

Credit has gotten so tight in recent weeks that companies contemplating a bankruptcy filing can't find the cash needed to get through the process.

This multibillion-dollar corner of the lending market -- debtor-in-possession and exit financing -- has been rocked by General Electric Co.'s GE -1.94% recent, undisclosed decision to largely halt lending to companies in bankruptcy-court protection or near it, said several bankruptcy lawyers and financial advisers. GE is one of the world's largest such lenders, last year doing $1.75 billion in restructuring loans.

Debtor-in-possession, or DIP, financing is essential for the lawyers, layoffs and other restructuring necessary for a company's rebirth. Exit financing is used when a company "exits" reorganization. Banks have been eager to take part in this market because the loans are the first to be paid back and command high interest rates.

Without the lending lines, companies that would normally survive bankruptcy will have to quickly sell assets. Potential buyers may not be able to borrow either, meaning companies could be forced to liquidate immediately instead of working out their problems. That could cost tens of thousands of jobs across the economy.

GE Capital, meanwhile, has told numerous potential borrowers that it is out of the DIP and exit-lending business until at least next year, said these people.

MORE...

http://online.wsj.com/article/SB122421475294443955.html

[MannyGoldstein]

1. They could have been bailed out with zero strings attached, like the banks

But bankers are... different.

[The Velveteen Ocelot]

2. One of the ironies of bankruptcy - at least, Ch. 11 reorganization -

is that you have to have money in order to do it. Usually DIP financing is where the money comes from. And if you can't get a DIP loan it's off to Ch. 7 with you - liquidation. There were no private sources of DIP loans in 2008. Without a government loan the car manufacturers would have been dead meat.

QED, Mitt was and is full of crap.

[BlueStreak]

3. Romney's idea was "socialize the risks, privatize the profits"

He was talking about a federal guarantee for a private investor.

#1 there were no private investors stepping up so it is a moot point.

#2 But let's say Obama pushed for a government guarantee. How bad would that suck? That says somebody like Bain could waltz in, take control of the company. Take control of the pensions. Shut down the business. Move production to China. And never risk a thing. If anything went wrong for them, the government would b eon the hook to bail them out.

No thank you.

[1StrongBlackMan]

4. I pointed this out ...

in response to some smart-a$$ed rwer, posting a transcript of romney's OP-ED piece on my daily rag's on-line comment. Funny, I think that was the only instance this rwer has EVER "fact-checked" anything. But that said ... when I asked who was in the position, or had an inclination to lend the auto-makers $500,000,000 (that romney would have the government guarantee), in an economy that was bleeding revenue (and jobs) from failed lending ... with no end in sight?

Well ... I'm still waiting for a response, other than "Thumb-downs", the site's comment popularity rating.

[nenagh]

5. Watch Tweety now...they are discussing this now..

I think with Pres Obama's car czar..