General Motors: Files for bankruptcy/Fiat misses bid on Opel/Vauxhall

From CALYON Capital Markets Research , 1 June 09


General Motors: Files for bankruptcy/Fiat misses bid on Opel/Vauxhall

Late Sunday the White House confirmed that General Motors will file for bankruptcy at 8:00am EDT (ie, 1:00pm UK time). President Obama will address the nation at 11:55am followed by GM's CEO at 12:15pm New York time.

As part of the restructuring process the company plans to close 11 plants and idle 3 others by the end of 2010. As a result of the new offer to bondholders that was disclosed last Thursday evening, the outstanding common equity of the ‘New GM' company, once emerged from Chapter 11, would be allocated as follows (excluding effects to the warrants): 72.5% to the US Treasury and Canadian and Ontario governments (of which 60% to the US), 17.5% to the UAW healthcare fund VEBA and 10% to ‘Old GM' bondholders and shareholders. In addition, existing bondholders will receive warrants to purchase an aggregate of 15% of the equity of New GM and the UAW healthcare trust fund will also receive warrants to buy another 2.5% of GM equity.

The US Treasury Department's investment in GM will amount to USD50.5bn, of which USD30.1bn in financing to keep GM running during the Chapter 11 process. GM will not terminate its pension plans, which are underfunded by at least USD12.7bn. In addition, the US Treasury has already set aside USD361m in guarantee warranties for GM cars sold while in bankruptcy. 54% of GM's bondholders have accepted the revised debt-to-equity swap offer that was disclosed to them on Thursday, which will help the bankruptcy judge in its review of the restructuring of GM. The US Treasury hopes that the New GM could exit bankruptcy in 60 to 90 days, which is challenging in our view given the number of creditors.

Such a bankruptcy will trigger additional job losses, which – together with Chrysler's Chapter 11 – we estimate at a minimum of half a million including the closure of many plants, 3,400 dealers, and subsequent job losses at auto suppliers and other non-auto businesses.

In addition, GM announced during the weekend that Magna – the Canadian auto supplier – is in the lead to acquire Opel/Vauxhall operations. This is negative for Fiat and for the industry in our view, as such a deal would not take out any production overcapacity for the sector.

We remain Underperform the Autos sector


Analyst: Christophe Boulanger, Autos Analyst