G.M. Bankruptcy Would Be History’s Most Complex
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By MICHELINE MAYNARD and MICHAEL J. de la MERCED
New York Times
May 26, 2009
DETROIT — The decline of General Motors may be putting thousands of auto workers and managers out of work, but it will be putting a lot of lawyers to work.
How many lawyers will end up working on G.M.’s expected bankruptcy case still is not clear, but in legal circles, the joke is that there may not be enough experienced bankruptcy lawyers available to handle the filing. In part, that is because so many top lawyers are already running up lots of billable hours working on the Chrysler bankruptcy case, while others have been hired by the government, which is financing the way through bankruptcy for Chrysler and, presumably, G.M.
It is not just lawyers who will be busy handling a G.M. bankruptcy filing, which would be perhaps the biggest and most watched in legal history. Because of its size and scope, the bankruptcy would be the most complicated that any American company has gone through — more complex than much-smaller Chrysler’s case and than Lehman Brothers, two other notable bankruptcy cases now making their way through the system.
The G.M. filing, which is expected to occur by June 1 as part of a restructuring orchestrated by the federal government, will generate so much economic activity — like occupied hotel rooms, busy restaurants and expanded office rentals — that Detroit is hoping that the case will be filed in the bankruptcy court here. That is unlikely, however, as bankruptcy cases are typically handled in New York or Delaware, where many business are incorporated and the bankruptcy courts have more experience handling complex filings.
For law firms, big bankruptcies can be very lucrative. Weil, Gotshal & Manges, the New York firm handling the Lehman case, recently sought approval for billings for $55 million for just three months’ work from the bankruptcy court in that case. Weil Gotshal is one of the firms that will represent G.M., almost certainly ensuring tens of millions more in fees to represent the automaker.
But it is not the only firm that will be working on the case. Already, hundreds of lawyers from almost every major firm that handles restructuring work have spent months preparing the reams of documents that would be required for a bankruptcy filing by G.M., which had nearly $150 billion in global revenue last year, making its case bigger than Enron.
G.M., the Treasury Department, the United Automobile Workers, suppliers, dealers and other vendors all will have legal representatives on hand, meaning a full house in the New York bankruptcy court where the case is likely to be heard. Although no judge will be assigned until the case is filed, court officials are creating plans for a separate computer server devoted to G.M.’s filing, which will be an even bigger megacase than Chrysler, which received that designation in April.
G.M. will require $40 billion to $70 billion in debtor-in-possession financing to create a new version of G.M. and dispose of its assets, according to people familiar with the case.
The near inevitability of the G.M. case is a sharp contrast to the resistance put up by company executives, including Rick Wagoner, the former chief. His steadfast refusal to file for Chapter 11 bankruptcy protection while the company restructured was a factor in his ouster in March at the behest of the Obama administration, which has been keeping G.M. alive with billions of dollars in loans.
Many people thought a G.M. bankruptcy restructuring was simply too complicated to attempt. “The case would last my lifetime, my son’s lifetime, my grandson’s lifetime and maybe my great-grandson’s lifetime,” Stephen P. Yokich, the late president of the U.A.W., said in a 1995 interview.
But G.M. did consider the idea seriously at least twice in the last two decades: once in 1992, when the company was close to insolvency, and again in late 2005, when rumors of a Chapter 11 filing swirled in Detroit.
Both times, G.M. officials rejected a bankruptcy filing, citing the disruption it would have meant to G.M.’s suppliers, workers, and the communities where the company did business. Another reason was the expense: “It would make 10 million lawyers $10 million apiece,” Mr. Yokich said in 1995.
That is an overstatement, of course. But while there might not be that many lawyers involved, hundreds of millions of dollars in legal fees are likely during the course of the case give the high-powered and high-fee lawyers involved.
A reason that so many lawyers are needed is that the restructuring, as envisioned by the automaker with support from the federal government, is complex.
The plan is to split G.M.’s good assets from the bad assets, with the idea that the part owning the good assets would be a viable company because it would not be burdened with the other businesses. G.M. would sell desirable brands like Chevrolet and Cadillac to a new company, which would emerge from bankruptcy protection in a few months’ time. Less-attractive assets and liabilities would remain with the old G.M., and eventually be liquidated.
For the last several months, G.M. has retained the services of two of the biggest bankruptcy players to help guide it into Chapter 11: Harvey R. Miller of Weil, Gotshal & Manges and Martin Bienenstock of Dewey & LeBoeuf.
Mr. Miller and his team are the company’s principal legal counsel for its bankruptcy filing; but it will not represent the new version of G.M. once that is created, as there is a potential conflict between parties with an interest in the existing company and those with interests in the new company. Mr. Bienenstock, a former partner of Mr. Miller’s at Weil, was brought in last fall to help create the company’s restructuring plan. He may end up representing the new G.M., although the decision has not been made.
The law firm Cravath, Swaine & Moore, meanwhile, is representing G.M.’s board.
The restructuring also will provide work for many professional groups other than lawyers. G.M., for example, has retained the services of Jay Alix, the co-founder of AlixPartners, the restructuring consulting firm. Mr. Alix, who came out of retirement to help G.M., worked with Mr. Bienenstock on the plan for a new G.M., according to people briefed on the matter.
For financial and restructuring advice, the carmaker has turned to investment bankers at Evercore Partners, led by a cofounder, Roger Altman, and the restructuring co-head, William Repko, and to Morgan Stanley.
The government’s auto task force has its own advisers, led by the former investment bankers Steven Rattner and Ron Bloom. The team also has brought in several restructuring veterans, notably Matthew Feldman, formerly a partner at the law firm Willkie, Farr & Gallagher, and Harry Wilson, formerly an executive at the distressed-debt-focused hedge fund Silver Point Capital.
In addition, the auto task force has retained the services of the investment bank Rothschild, led by Todd Snyder, and the law firm Cadwalader, Wickersham & Taft, led by John J. Rapisardi, and the Boston Consulting Group, to provide forecasts for auto sales.
The U.A.W., meanwhile, is receiving counsel from longtime advisers at Lazard, the investment bank, and the law firm Cleary, Gottlieb, Steen & Hamilton.
As the lawyers prepare to take their seats, many other steps have already been taken to ease the company into court.
Last week, the U.A.W. reached a deal with G.M. that includes concessions by workers and modifications to a health care fund that will assume responsibility for retirees’ benefits.
G.M. workers will be briefed on the contract changes in meetings Tuesday and Wednesday, and are expected to vote on them this week.
Communities where G.M. does business are eligible to share in $50 million in federal assistance, announced by the administration last week.
Suppliers also have been offered assistance, and the Treasury is infusing more money into GMAC, the company’s lending arm that also will provide loans for Chrysler.
Consumers who purchase G.M. cars while the company is under bankruptcy protection will have their warranties backed by the federal government, as it is doing for Chrysler buyers.
“I’ve never seen a bankruptcy that has such a happy face on it as this one,” Gary N. Chaison, professor of industrial affairs at Clark University in Worcester, Mass., said of the work that has been done in advance.
As a result, the tone has completely changed since the dire warnings late last year that a Chapter 11 case would spell the end to the country’s biggest carmaker. Now, Professor Chaison said, the government’s attitude was, “You’re going to the hospital and that’s really good because you’ll be out soon and you’ll be much better.”
-Micheline Maynard reported from Detroit and Michael J. de la Merced from New York.
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