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February 23, 2009

Treasury Starts Looking for Bankruptcy Funding for the Ailing Big Two

I almost said "quietly looking" but the fact that we're reading about it in the Wall Street Journal means it's pretty damn out in the open, no matter that it is "outside advisers" doing the work and the White House is staying out of it so as not to piss of the unions.

And that's really what is going on here. Treasury is using the threat of Chapter 11 restructuring to scare the unions into cooperating. Hilarity ensues (with apologies to the commenters on this post):

The initial discussions call for private banks to provide the financing -- known as a debtor-in-possession, or DIP, loan -- with the government guaranteeing or backstopping the loan. In this scenario, some of the financing would be used to pay back the $17.4 billion the government lent GM and Chrysler late last year.

Treasury advisers are handling the effort and keeping GM and Chrysler informed of the steps through back-door channels, said the people familiar with the matter. The interplay between the government, auto makers and the markets is proving to be complicated.

Lenders are reluctant to commit funding to GM or Chrysler for several reasons -- mostly concern they won't get all their money back.

I'm hoping that bolded part was meant to be a joke. Of course that's what potential lenders are concerned about! In fact, once upon a time we would say that they rightfully intend to make a profit on the deal, rather than merely "get all their money back."

What in the world would impel banks to throw billions away? The Wall Street Journal says that Treasury advisers are "aggressively courting" banks which have already received federal bailout funds. Those are some mighty long strings attached.


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posted by Gabriel Malor at 09:27 AM

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