Comments on: Will the Federal Government Provide Bankruptcy Financing? http://www.nakedcapitalism.com/2008/11/will-federal-government-provide.html Sun, 22 Nov 2009 20:38:51 -0500 http://wordpress.org/?v=2.8.4 hourly 1 By: Anonymous http://www.nakedcapitalism.com/2008/11/will-federal-government-provide.html#comment-27181 Anonymous Wed, 26 Nov 2008 02:35:00 +0000 http://www.nakedcapitalism.com/2008/11/will-the-federal-government-provide-bankruptcy-financing/#comment-27181 There is a more serious problem with automobile bankruptcies than lack of DIP availability.<br/><br/>Airlines can operate for years in Chapter 11, because there is no ongoing relationship with an airline beyond a single trip. However, buying a car is very different, because you rely on a multi-year warranty and the long-term availability of spare parts. Discontinued car brands (Oldsmobile and Plymouth) have <a HREF="http://money.cnn.com/2008/10/20/autos/buying_a_dying_brand/index.htm" REL="nofollow">have been shown to have significantly impaired resale value</a>, so there's reason to believe buyers would shun the products of a car company in Chapter 11. There is a more serious problem with automobile bankruptcies than lack of DIP availability.

Airlines can operate for years in Chapter 11, because there is no ongoing relationship with an airline beyond a single trip. However, buying a car is very different, because you rely on a multi-year warranty and the long-term availability of spare parts. Discontinued car brands (Oldsmobile and Plymouth) have have been shown to have significantly impaired resale value, so there’s reason to believe buyers would shun the products of a car company in Chapter 11.

]]> By: Anonymous http://www.nakedcapitalism.com/2008/11/will-federal-government-provide.html#comment-27095 Anonymous Tue, 25 Nov 2008 15:13:00 +0000 http://www.nakedcapitalism.com/2008/11/will-the-federal-government-provide-bankruptcy-financing/#comment-27095 While all the talk about the lack of DIP financing is cute and all, it's as much, if not more, a manifestation of the lack of availability for exit financing. If a company has no foreseeable exit from a bankruptcy with a logical and workable capital structure (usually involving new senior debt, revolvers, old unsecured being turned into equity, etc.) then there is not incentive to extend the DIP loan in the first place. Remember first priority still requires that the liquidation value be greater than the risk-weighted value of the DIP, which won't always be the case. While all the talk about the lack of DIP financing is cute and all, it’s as much, if not more, a manifestation of the lack of availability for exit financing. If a company has no foreseeable exit from a bankruptcy with a logical and workable capital structure (usually involving new senior debt, revolvers, old unsecured being turned into equity, etc.) then there is not incentive to extend the DIP loan in the first place. Remember first priority still requires that the liquidation value be greater than the risk-weighted value of the DIP, which won’t always be the case.

]]> By: bg http://www.nakedcapitalism.com/2008/11/will-federal-government-provide.html#comment-27049 bg Tue, 25 Nov 2008 07:20:00 +0000 http://www.nakedcapitalism.com/2008/11/will-the-federal-government-provide-bankruptcy-financing/#comment-27049 the US government usually does the right thing after all other options are exhausted. There is no bailout for the big 3, so there will be government sponsored DIP financing (probably bundled into a bank bailout).<br/><br/>There can be no other way. GM mgt is hopeless, but the dems cannot win in 2012 after crushing 3M auto jobs. So there will be BK+govt DIP. the US government usually does the right thing after all other options are exhausted. There is no bailout for the big 3, so there will be government sponsored DIP financing (probably bundled into a bank bailout).

There can be no other way. GM mgt is hopeless, but the dems cannot win in 2012 after crushing 3M auto jobs. So there will be BK+govt DIP.

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