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random rants about news, the law, healthcare law, economics and anything I find amusing

Op-Ed Columnist – Car Dealer in Chief – NYTimes.com

I think that Brooks has it wrong this time.  I agree that GM cannot restructure itself out of its current situation.  I agree that the Bush administration punted.  I agree that they should have — there needed to be preparation for the imminent bankruptcy.  I also disagree that this one has to remain a political football with Congress or the administration micromanaging GM’s bankruptcy process.   The administration needs to turf this to a real bankruptcy process and then get out of the way.  At the end of the line, it’s a fight between the financial stakeholders, not the politicians.  Throw the bondholders, unions, dealerships and other creditors into the pit (atop the corpse of shareholder equity) and see how it works out.

For 30 years, G.M. has been restructuring itself toward long-term viability. For all these years, G.M.’s market share has endured a long, steady slide…When the economy cratered last fall, the professionals at G.M. went into Super-Duper Restructuring Overdrive… The Bush advisers decided in December that bankruptcy without preparation would be a disaster. They decided what all administrations decide — that the best time for a bankruptcy filing is a few months from now, and it always will be…Today, G.M. and Chrysler have once again come up with restructuring plans…But this, President Obama declares, is G.M.’s last chance. Honestly. Really.No kidding…And yet by enmeshing the White House so deeply into G.M., Obama has increased the odds that March’s menacing threat will lead to June’s wobbly wiggle-out.  The Obama administration and the Democratic Party are now completely implicated in the coming G.M. wreck…The Midwestern delegations, swing states all, will pull out all the stops to prevent plant foreclosures. Unions will be furious if the Obama-run company rips up the union contract… The most likely outcome, sad to say, is some semiserious restructuring plan, with or without court involvement, to be followed by long-term government intervention and backdoor subsidies forever…It would have been better to keep a distance from G.M. and prepare the region for a structured bankruptcy process. Instead, Obama leapt in. His intentions were good, but getting out with honor will require a ruthless tenacity that is beyond any living politician.

via Op-Ed Columnist – Car Dealer in Chief – NYTimes.com.

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Top 25 Lawyers Behind the Deals of the Year – DealBook Blog – NYTimes.com

Wow.  It’s a sign of the times when the vast majority of notable deals are hightlighted as non-traditional M&A related to bailouts and collapses! Remarkable times.

Only six of the dealmakers on the list this year were recognized for their involvement in conventional mergers-related deals (most are at the bottom of the list except for those involved in InBev’s purchase of Anheuser-Busch and Mars’s purchase of Wrigley). The various distressed deals and government–brokered mergers topped the list…

Here were the deals noted in American Lawyer:

1. Bank Bailouts: H. Rodgin Cohen, Sullivan & Cromwell

2. Bank of America’s Merrill Lynch acquisition: Edward Herlihy, Wachtell, Lipton, Rosen & Katz

3. Lehman Bankruptcy: Harvey Miller, Weil, Gotshal & Manges

4. TARP: Lee Meyerson, Simpson Thacher & Bartlett

5. A.I.G. Bailout: Michael Wiseman, Sullivan & Cromwell

6. IndyMac Purchase: Paul Glotzer, Cleary Gottlieb Steen & Hamilton

7. InBev’s Anheuser-Busch Acquisition: Francis Aquila, Sullivan & Cromwell

8. Fannie, Freddie Conservatorships: Harold Novikoff, Wachtell, Lipton, Rosen & Katz

9. FGIC Rescue: Corinne Ball, Jones Day

10. Federal Interventions: Thomas Baxter Jr., Federal Reserve Bank of New York

11. Calpine, Solutia Bankruptcies: Richard Cieri, Kirkland & Elli

12. KazMunayGas Pipeline Renegotiation: George Kahale III, Curtis, Mallet-Prevost, Colt & Mosle

13. Mars’s Wrigley Acquisition: John Finley, Simpson Thacher & Bartlett

14. Latin American Project Financings: Cynthia Urda Kassis, Shearman & Sterling

15. A.I.G. Bailout: Marshall Huebner, Davis Polk & Wardwell

16. Visa I.P.O.: S. Ward Atterbury, White & Case

17. Independent Director Representations: Robert Joffe, Cravath, Swaine & Moore

18. Vallejo Bankruptcy: Marc Levinson, Orrick, Herrington & Sutcliffe

19. Clearwire Asset Acquisition: Joshua Korff, Kirkland & Ellis

20. Sirius-XM Merger: Joe Sims, Jones Day

21. Verizon Wireless’s Alltel Acquisition: Jeffrey Rosen, Debevoise & Plimpton

22. Triarc’s Wendy’s Acquisition: Paul Ginsberg, Paul, Weiss, Rifkind, Wharton & Garrison

23. Citigroup Bailout: George Bason Jr., Davis Polk & Wardwell

24. Washington Mutual Bankruptcy: Marcia Goldstein, Weil, Gotshal & Manges

25. A.I.G. Bailout: Eric Dinallo, New York State Insurance Department

via Top 25 Lawyers Behind the Deals of the Year – DealBook Blog – NYTimes.com.

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How to Save General Motors

In its Dealbook Blog, the New York Times presents a solution by several leading bankruptcy attorneys.  GM has an admitted $100 billion negative net worth.  It cannot survive as structured and it cannot be restructured without some strong decision-maker that can cram very unpleasant concessions down the throats of stakeholders.  In any other scenario, that’s a bankruptcy process.  The authors recognized that this is not an ‘ordinary’ bankruptcy, but it is not without precedent.  They also observe:

The current public debate is misplaced over whether or not bankruptcy is the solution to G.M.’s problems. There is a public misconception about what bankruptcy means for a business enterprise. Bankruptcy can mean liquidation, or it can be a means of renewal, taking a financially distressed business and creating a viable company by restructuring or eliminating burdensome contracts, reducing debt, and securing new financing. Chapter 11 is such a process; it is flexible; and it can, and must for G.M., be quick. The paramount goal of the G.M. bailout should be the expedient creation of a viable G.M. Core. A sale to a G.S.E. as part of a Chapter 11 proceeding seems to us to be exactly the process to achieve that goal.

It is worth a read.  And this (or a variation of it) is what’s going to happen, eventually, even if the economy suddenly bottoms out and begins a climb back upward.  There’s no political process to solve this but for unending government cash flows to these insolvent entities.  And I don’t think the taxpayers have the stomach for the kind of cash that will require over the next six months even.  Further, Obama’s axing of the CEO of GM, GM’s recent change of tune regarding its considering bankruptcy, the strict time lines for GM to strike its own deal as set down by the administration, as well as Obama’s commitment that warranties would be backed by the full faith and credit of the US (which was a main argument by the automakers regarding why the could not go into Chapter 11) are not inconsistent with some bankruptcy process being the end game.

See also U.S. Plan Sees Easing of G.M. to Bankruptcy from the New York Times DealBook on

via Another View: How to Save General Motors – DealBook Blog – NYTimes.com.

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