GM sprung free and world still standing

July 10, 2009

They said it couldn’t be done and here we are less than 40 days after GM filed and the new leaner, possibly meaner, automaker has been sprung free from bankruptcy court.

I don’t want to downplay the hardship of the GM workers being left behind, but the much feared Armageddon just hasn’t happened, giving the Obama Administration a big win for making the politically risky move of allowing GM and Chrysler to go into bankruptcy in the first place.

Last year, some said bankruptcy just wasn’t feasible for such a sprawling industrial company, and that the company’s failure would cause millions of Americans to lose their jobs.

That’s not to say the auto sector’s troubles are over. GM still has to build cars that Americans want to buy, and let’s face it, there are fewer Americans looking to buy given the sorry state of the economy. On top of that, the new company is majority owned by a US government that is spread pretty thin trying to save the economy, housing, big financial institutions and all. That could make for a pretty distracted owner.

But it’s an important start.

It also opens up the door for more so-called 363 bankruptcies where a failed company can be split into good and bad assets so the good part won’t get bogged down in the normal food fight between creditors and the company. Here‘s a fact sheet on 363, and the key bit about why the process can be lickety-split.

A 363 sale requires only the approval of the Bankruptcy Judge while a plan of reorganization must be approved by a substantial number of creditors and meet certain other requirements to be “confirmed.” A plan of reorganization is much more comprehensive than a 363 sale in addressing the overall financial situation of the Debtor and how its exit strategy from bankruptcy will affect creditors.

Needless to say, creditors don’t like 363 bankruptcies, but not so much that lending to risky companies has dried up. In fact, the high-yield bond market for one has sprung back to life amid the Chrysler and GM bankruptcies.

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