Re: "I "think" these loans the government is giving will create a situation that essentially IS bankruptcy, but without using that WORD."
I agree.
The government is trying to 'knock heads' together and get all the interested parties (who would be required to take a haircut in any bankruptcy filing anyway) to realize that the haircut is inevitable... and just do it voluntarily, and faster then it would happen in chapter 11 bankruptcy reorganization.
Faster is better.
Re: The government loans will get "deferential" treatment, which will put all subordinate debt holders in pretty much the same spot they'd be in in actual bankruptcy. Their debt paper will be pretty much worthless.
Yep. The current stock (already reduced by 99% in value as it trades today) will finish being wiped out.
The unsecured subordinate debt (debentures, etc.) will also be nearly completely wiped.
The remaining fights will be over how much the secured debt (senior & or secured notes, vendor financing, etc.) will be devalued. (Government is pushing for 2/3rds the face value of bonds to be force-converted into new equity.)
That, and some of the bond owners are arguing that LONGER-TERM bonds should take a bigger haircut than short term notes....
Re: "The companies themselves will be scaled down...."
Yeah. I imagine that is why Canada stepped up and gave the companies money as well --- they want some leverage over WHICH factories get closed. They don't want all the closed ones to be North of the border.
Re: "and the Unions will have to accept major cuts in wages and benefits."
Yep. But even more difficult then that (& more important economically) will be severing dealer franchise contracts without having to pay the dealers tens to hundreds of billions... and fight it out in courts for years.
Re: "When the economy has stabilized the Government can just CALL all these loans if they want to and let these companies just sink or swim based on what they do in the next couple years."
The government loans (that Bush just made, out of the TARP money) are already callable at the end of March. (If, in the opinion of the feds, sufficient progress has not been made toward 'commercial viability' then they can demand instant payment... which would, of course, trigger bankruptcy over-night.)
The government also got warrants, but I suppose those would be wiped in a bankruptcy filing. |
