Credit analysts fully expect a bankruptcy filing by
The likelihood is 70%, Moody's analyst Bruce Clarke said Tuesday, reiterating the odds he set in December. Meanwhile, KDP analyst Kip Penniman reiterated recently that: "We believe a pre-packaged Ch. 11 financial reorganization is GM's only path to successfully reducing its pre-existing liabilities and negotiating competitive labor contracts.
"We expect the (Obama) administration would prefer that Chrysler and GM restructure outside of bankruptcy," Clarke wrote. "(But) given the lack of progress achieved and the additional progress that will be required in the revised plans, this threat will need to be seen as credible in order to compel adequate movement on the part of stakeholders."
While it is possible the administration is bluffing, wrote Clarke, "any attempt to call that bluff could be a risky strategy."
The administration has identified three key restructuring targets for GM: reducing unsecured debt by two thirds, reducing wages and benefits in the United Auto Workers contract, and making half of its future contribution to the union-administered retiree health care trust in stock rather than cash.
Not only has GM so far failed to achieve these targets, but its problems are compounded because it is unlikely to meet assumptions in its plan regarding vehicle sales, cost savings, market share and pricing, Penniman wrote.
Among the problems pushing GM to file, Penniman wrote that while the UAW may agree to contract cuts, "it will prove a tough sell to the rank and file UAW members who will ultimately vote on the plan." Also, retirees are unlikely to back a plan to fund a share of their health care obligations with stock, and if the UAW agrees, "we would expect to see a very emotionally charged series of lawsuits filed against the UAW and GM.
Also, Penniman said, "there would remain a significant number of bondholders who would choose not to participate in any debt exchange." Meanwhile, secured lenders would likely be asked to voluntarily sacrifice collateral in order to provide super-priority status for government loans, but "any effort to cram down the secured lenders outside of bankruptcy court would set a dangerous precedent.
"We believe the chances that GM could accomplish all of this 'voluntarily' are essentially zero," he wrote.
Bankruptcy remains a possibility for the other Detroit automakers, Clarke wrote. He said the risk is "moderately below" 70% for
risk is higher than 70%.