Written by: Keun H. Maeng
When Chairman and Chief Executive G. Richard Wagoner Jr. strongly asserted on November 16th that filing Chapter 11 is not necessary for the company and that such action is “contrary to the interests of our employees, stock-and bondholders, dealers, and our suppliers and customers”, he may have underestimated the seriousness of turmoil his company is determined to undergo.
If GM did file Chapter 11, it would be the largest file on bankruptcy of all times in our country. The consequences that GM’s stakeholders are bound to face is immeasurable. Even though the overall effect of our national economy would not be devastated, the impact that Midwest would face on job losses and the benefit cuts for their retirees is a serious issue that has no definitive solution.
The price of GM’s credit-default swaps have soared from the past few years. Credit-default swaps are insurance in case the carmakers cannot pay back the loans they have made.
Today, the cost of the premium has increased to 12 percentage points, which is four times the amount of cost back in January 2005. Bankruptcy attorney from Fulbright & Jaworski LLP, believes that GM is better off in filing Chapter 11. During the past, companies who have filed bankruptcy have come back to their normal status within few years.
http://news.bbc.co.uk/2/hi/business/7996898.stm
http://www.businessweek.com/magazine/content/05_50/b3963114.htm
http://meganmcardle.theatlantic.com/archives/2009/04/a_quick_bankruptcy_for_gm.php
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