(Reuters) - If General Motors Corp files for bankruptcy, as widely expected, its healthy assets will be quickly sold to a new company owned by the U.S. government, a source familiar with the situation said on Tuesday.
The source, who was not cleared to speak with the media and would not be identified, said the U.S. government would pay for the assets by assuming the automaker's $6 billion of secured debt and forgiving the bulk of the $15.4 billion of emergency loans that the U.S. Treasury has provided to GM.
The government is negotiating the terms on which it will assume GM's secured debt and might make an the offer to holders of the debt that is far superior to the one made to Chrysler LLC's secured lenders, the source said.
Chrysler filed for bankruptcy in April and has proposed paying its secured lenders about 28 cents on the dollar.
The new GM is likely to distribute stock in the company to GM's unions in return for concessions on wages and benefits, the source said.
The percentage of stock given to the unions, bondholders and other creditors whose debt is not repaid by new GM has not been determined, the source said.
In addition, the government would extend a credit line to the new company, the source said.
The remaining assets of GM would stay in bankruptcy protection to satisfy other outstanding claims.
The government has given GM until June 1 to restructure its operations to lower its debt burden and employee costs as sales have plummeted in recent years.
DELPHI, HENDERSON
GM will likely take on some of the operations of its bankrupt supplier Delphi Corp to make sure it gets needed auto parts throughout its reorganization, according to the source. The company is currently negotiating terms with Delphi's estate, the source said.
Delphi, a former unit of GM, has been operating in bankruptcy since 2005.
The board of the new company would be established with the tacit approval of the government. Fritz Henderson, who took the helm of GM earlier this year after the government pushed out Rick Wagoner, will head the new company, the source said.
Setting up a new company to buy the healthy assets is aimed bringing operations out of bankruptcy as quickly as possible. GM is concerned that consumers might not be willing to make a major purchase from a bankrupt company, fearing it would not honor warranties or provide service.
Chrysler is employing a similar strategy in its bankruptcy. The smaller automaker is selling its operations to a group that will be managed by Italian automaker Fiat and wants to have the strongest operations out of bankruptcy in 60 days.
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Tuesday, 19 May 2009
Fiat expansion stirs resentment in Italy's south
(Reuters) - Staring at the locked gates of a Fiat car factory, Mimmo Vacchiano says many families in this poor corner of southern Italy face a stark choice unless its turnstiles reopen.
"If they close this plant, there's nothing else here, only unemployment or the mafia," said Vacchiano, a 48-year-old father of two. "Here, it's not like northern Italy, where you can find another job. We're living in panic."
Pomigliano d'Arco, a town of 40,000 people in the shadow of Mount Vesuvius, relies on Fiat for its lifeblood. In recent decades, industry in the nearby port of Naples has closed, tightening the grip of the ruthless Camorra crime gang on the economy of one of Europe's most depressed regions.
Residents now fear they may pay the price for cash-strapped Fiat's high-stakes strategy to survive the global recession by expanding to become the world's second largest car maker.
Unemployment in Pomigliano already runs at nearly 20 percent and Fiat's temporary closure of the plant -- in a bid to slash costs like other major car makers -- has brought the town to its knees. Fiat employs 5,000 people directly here but the plant provides jobs for 20,000 if suppliers are taken into account.
Fiat agreed last month to take 20 percent of bankrupt No. 3 U.S. auto maker Chrysler and wants to buy the international operations of struggling General Motors, including Germany's Opel. This has raised fears of job cuts in Italy, especially in Pomigliano and at Fiat's Termini Imerese plant in Sicily.
Workers in Pomigliano, among the most militant in Italy, have already clashed with police despite pledges from Fiat and the government that the plant may be downsized but not closed.
"Shutting this plant would cause a revolt," said Vacchiano, standing with angry unionists who say Fiat has refused to talk to them. "If they buy Opel, they'll be doing it with money made off our backs!"
Fiat CEO Sergio Marchionne has said he will only meet unions once he has a clearer idea of the Opel deal. But with Fiat idling the plant for weeks at a time, workers say monthly welfare payments of about 700 euros ($950) are not enough.
On the winding main street, some stores have shut down and in the square men sit idly on park benches. Rubbish litters doorways and washing dries on lines outside apartments where three generations of families live.
In his office in the dilapidated municipal building, Mayor Antonio Dellaratta says Prime Minister Silvio Berlusconi's center-right government has a duty to step in.
"This could bring the local economy to its knees. High unemployment and insecurity would bring this town to collapse," he said. "We're in favor of this Opel merger but production must stay here. We must insist on that because Fiat is Italian."
RISKY MOVE
Founded in 1899 in the industrial town of Turin, Fiat quickly grew to become the country's largest industrial group, transforming the Agnelli family that controls it into the closest thing Italy now has to royalty.
Fiat has factories from Brazil to Poland, luxury brands such as Maserati and Ferrari, and interests in insurance, technology, advertising and publishing, including La Stampa newspaper.
Read more here
"If they close this plant, there's nothing else here, only unemployment or the mafia," said Vacchiano, a 48-year-old father of two. "Here, it's not like northern Italy, where you can find another job. We're living in panic."
Pomigliano d'Arco, a town of 40,000 people in the shadow of Mount Vesuvius, relies on Fiat for its lifeblood. In recent decades, industry in the nearby port of Naples has closed, tightening the grip of the ruthless Camorra crime gang on the economy of one of Europe's most depressed regions.
Residents now fear they may pay the price for cash-strapped Fiat's high-stakes strategy to survive the global recession by expanding to become the world's second largest car maker.
Unemployment in Pomigliano already runs at nearly 20 percent and Fiat's temporary closure of the plant -- in a bid to slash costs like other major car makers -- has brought the town to its knees. Fiat employs 5,000 people directly here but the plant provides jobs for 20,000 if suppliers are taken into account.
Fiat agreed last month to take 20 percent of bankrupt No. 3 U.S. auto maker Chrysler and wants to buy the international operations of struggling General Motors, including Germany's Opel. This has raised fears of job cuts in Italy, especially in Pomigliano and at Fiat's Termini Imerese plant in Sicily.
Workers in Pomigliano, among the most militant in Italy, have already clashed with police despite pledges from Fiat and the government that the plant may be downsized but not closed.
"Shutting this plant would cause a revolt," said Vacchiano, standing with angry unionists who say Fiat has refused to talk to them. "If they buy Opel, they'll be doing it with money made off our backs!"
Fiat CEO Sergio Marchionne has said he will only meet unions once he has a clearer idea of the Opel deal. But with Fiat idling the plant for weeks at a time, workers say monthly welfare payments of about 700 euros ($950) are not enough.
On the winding main street, some stores have shut down and in the square men sit idly on park benches. Rubbish litters doorways and washing dries on lines outside apartments where three generations of families live.
In his office in the dilapidated municipal building, Mayor Antonio Dellaratta says Prime Minister Silvio Berlusconi's center-right government has a duty to step in.
"This could bring the local economy to its knees. High unemployment and insecurity would bring this town to collapse," he said. "We're in favor of this Opel merger but production must stay here. We must insist on that because Fiat is Italian."
RISKY MOVE
Founded in 1899 in the industrial town of Turin, Fiat quickly grew to become the country's largest industrial group, transforming the Agnelli family that controls it into the closest thing Italy now has to royalty.
Fiat has factories from Brazil to Poland, luxury brands such as Maserati and Ferrari, and interests in insurance, technology, advertising and publishing, including La Stampa newspaper.
Read more here
Bank of America raises $13.47 billion in share sale
(Reuters) - Bank of America Corp raised $13.47 billion through a share sale, marking a major step toward meeting the U.S. government's requirements for capital-raising following the recent "stress testing" of the bank.
Including proceeds from the sale of part of its stake in China Construction Bank Corp for $7.3 billion, the bank is now more than half-way toward plugging a $33.9 billion capital shortfall identified by the government.
The bank has issued 1.25 billion shares at an average price of $10.77 each since last Friday, it said in a statement late on Tuesday. Earlier in the day, a source familiar with the transaction said the bank had sold 800 million shares at $10 each on Tuesday alone.
The average price of $10.77 is 4.3 percent below Tuesday's closing price of $11.25. Bank of America shares rose two cents in after-hours trade to $11.27.
The offering by Bank of America comes on the heels of smaller share issuances by other banks ordered to raise capital. This includes offerings of $8.6 billion by Wells Fargo & Co and $4 billion by Morgan Stanley.
As part of Bank of America's stock sale, which brought in gross proceeds of about $13.47 billion, the bank sold 800 million shares at $10 each on Tuesday alone, a person familiar with the transaction earlier told Reuters.
The person was not authorized to speak because terms of the sale are not public.
Read more here
Including proceeds from the sale of part of its stake in China Construction Bank Corp for $7.3 billion, the bank is now more than half-way toward plugging a $33.9 billion capital shortfall identified by the government.
The bank has issued 1.25 billion shares at an average price of $10.77 each since last Friday, it said in a statement late on Tuesday. Earlier in the day, a source familiar with the transaction said the bank had sold 800 million shares at $10 each on Tuesday alone.
The average price of $10.77 is 4.3 percent below Tuesday's closing price of $11.25. Bank of America shares rose two cents in after-hours trade to $11.27.
The offering by Bank of America comes on the heels of smaller share issuances by other banks ordered to raise capital. This includes offerings of $8.6 billion by Wells Fargo & Co and $4 billion by Morgan Stanley.
As part of Bank of America's stock sale, which brought in gross proceeds of about $13.47 billion, the bank sold 800 million shares at $10 each on Tuesday alone, a person familiar with the transaction earlier told Reuters.
The person was not authorized to speak because terms of the sale are not public.
Read more here
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