GM prepares for, tries to avoid bankruptcy

General Motors has paid employees early to avoid bouncing paychecks or other delays, as it prepares for a June 1 deadline which may bring it into bankruptcy court. GM is also said to be preparing a last-ditch offer for bondholders, who will be competing for a much smaller pool of cash if GM is liquidated or faces an extended bankruptcy court stay.

The Obama administration has invested heavily in General Motors, and is ready to support GM through debtor-in-possession financing, but as Chrysler has pointed out, if the bankruptcy court proceedings are not swift, the corporation’s core assets are likely to lose considerable value. In a Chapter 7 (liquidation) scenario, GM would be worth a fraction of its value as a going concern, especially given the current shortage of cash in the industry.

While it is possible the deadline could be extended, it appears unlikely. Chrysler was close to agreement with dissident bondholders, but entered Chapter 11 proceedings when the deadline arrived.

 Like on Facebook