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Tue Oct 23, 2012, 07:01 PM

Was There a Bankruptcy Alternative for the Automakers? [View all]

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.

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.

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.”



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


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.



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Reply Was There a Bankruptcy Alternative for the Automakers? [View all]
Purveyor Oct 2012 OP
MannyGoldstein Oct 2012 #1
The Velveteen Ocelot Oct 2012 #2
BlueStreak Oct 2012 #3
1StrongBlackMan Oct 2012 #4
nenagh Oct 2012 #5