dbK
12-19-2008, 09:14 AM
http://www.politico.com/news/stories/1208/16740.html
Bush should be speaking on this within the next few hours. Executive summary: GM/Chrysler have access to $13.4 bn now, with the other 4 bn contingent upon Congress approving funding for the next part of TARP. Both firms have to prove viability by March 09 or the Treasury will call the loans. Gov't gets warrants for some class of preferred stock. Also some PR garbage like executive compensation/perks limits, gov't oversight, etc. Of note, which is interesting, is that this debt is senior to all other debt (except as required by law, I suppose), meaning in the event of a bankruptcy the government would be paid back before anything else.
Transcript, from above link:
President Bush stepping in Friday to keep America's auto industry afloat, announcing a $17.4 billion bailout for car manufacturers, with the terms of the loans requiring that the firms become profitable soon.
"If we were to allow the free market to take its course now, it would almost certainly to disorderly bankruptcy and liquidation for the automakers," Bush said at the White House, in remarks carried live by the national broadcast networks.
"Such a collapse would deal an unacceptable blow to Americans far beyond the auto industry. ... It could send our suffering economy into a deeper and longer recession."
Bush also said it could mean the next president would be dealing with the bankruptcy of huge American emploers in his first days in office.
Of the total, $13.4 billion will be paid out in December and January. The last $4 billion is contingent on the second installment of the Wall Street bailout funds from Congress.
The announcement immediately affects GM and Chrysler, not Ford, administration officials said.
The government gets a stake in the company, and can call in the loans on March 31 if the firms cannot prove "viability" by then. The manufacturers do not have to be profitable immediately but have to be "profitable soon," a senior administration official said.
The structure largely follows the pattern of legislation that failed in Congress last week in the Senate because of Republican opposition. In stepping in as he is, Bush risks angering conservatives in his party but the administration felt it had no choice given the fragile state of the economy
Here are the details of the White House plan:
Fact Sheet: Financing Assistance to Facilitate the Restructuring of Automobile Manufacturers to Attain Financial Viability
Purpose: The terms and conditions of the financing provided by the Treasury Department will facilitate restructuring of our domestic auto industry, prevent disorderly bankruptcies during a time of economic difficulty, and protect the taxpayer by ensuring that only financially viable firms receive financing.
Amount: Auto manufacturers will be provided with $13.4 B in short-term financing from the TARP, with an additional $4 B available in February, contingent upon drawing down the second tranche of TARP funds.
Viability Requirement: The firms must use these funds to become financially viable. Taxpayers will not be asked to provide financing for firms that do not become viable. If the firms have not attained viability by March 31, 2009, the loan will be called and all funds returned to the Treasury.
Definition of Viability: A firm will only be deemed viable if it has a positive net present value, taking into account all current and future costs, and can fully repay the government loan.
Binding Terms and Conditions: The binding terms and conditions established by the Treasury will mirror those that were voted favorably by a majority of both Houses of Congress, including:
—Firms must provide warrants for non-voting stock.
—Firms must accept limits on executive compensation and eliminate perks such as corporate jets.
—Debt owed to the government would be senior to other debts, to the extent permitted by law.
—Firms must allow the government to examine their books and records.
—Firms must report and the government has the power to block any large transactions (> $100 M).
—Firms must comply with applicable Federal fuel efficiency and emissions requirements.
—Firms must not issue new dividends while they owe government debt.
Targets: The terms and conditions established by Treasury will include additional targets that were the subject of Congressional negotiations but did not come to a vote, including:
—Reduce debts by 2/3 via a debt for equity exchange.
—Make one-half of VEBA payments in the form of stock.
—Eliminate the jobs bank.
—Work rules that are competitive with transplant auto manufacturers by 12/31/09.
—Wages that are competitive with those of transplant auto manufacturers by 12/31/09.
These terms and conditions would be non-binding in the sense that negotiations can deviate from the quantitative targets above, providing that the firm reports the reasons for these deviations and makes the business case to achieve long-term viability in spite of the deviations.
In addition, the firm will be required to conclude new agreements with its other major stakeholders, including dealers and suppliers, by March 31, 2009.
Bush should be speaking on this within the next few hours. Executive summary: GM/Chrysler have access to $13.4 bn now, with the other 4 bn contingent upon Congress approving funding for the next part of TARP. Both firms have to prove viability by March 09 or the Treasury will call the loans. Gov't gets warrants for some class of preferred stock. Also some PR garbage like executive compensation/perks limits, gov't oversight, etc. Of note, which is interesting, is that this debt is senior to all other debt (except as required by law, I suppose), meaning in the event of a bankruptcy the government would be paid back before anything else.
Transcript, from above link:
President Bush stepping in Friday to keep America's auto industry afloat, announcing a $17.4 billion bailout for car manufacturers, with the terms of the loans requiring that the firms become profitable soon.
"If we were to allow the free market to take its course now, it would almost certainly to disorderly bankruptcy and liquidation for the automakers," Bush said at the White House, in remarks carried live by the national broadcast networks.
"Such a collapse would deal an unacceptable blow to Americans far beyond the auto industry. ... It could send our suffering economy into a deeper and longer recession."
Bush also said it could mean the next president would be dealing with the bankruptcy of huge American emploers in his first days in office.
Of the total, $13.4 billion will be paid out in December and January. The last $4 billion is contingent on the second installment of the Wall Street bailout funds from Congress.
The announcement immediately affects GM and Chrysler, not Ford, administration officials said.
The government gets a stake in the company, and can call in the loans on March 31 if the firms cannot prove "viability" by then. The manufacturers do not have to be profitable immediately but have to be "profitable soon," a senior administration official said.
The structure largely follows the pattern of legislation that failed in Congress last week in the Senate because of Republican opposition. In stepping in as he is, Bush risks angering conservatives in his party but the administration felt it had no choice given the fragile state of the economy
Here are the details of the White House plan:
Fact Sheet: Financing Assistance to Facilitate the Restructuring of Automobile Manufacturers to Attain Financial Viability
Purpose: The terms and conditions of the financing provided by the Treasury Department will facilitate restructuring of our domestic auto industry, prevent disorderly bankruptcies during a time of economic difficulty, and protect the taxpayer by ensuring that only financially viable firms receive financing.
Amount: Auto manufacturers will be provided with $13.4 B in short-term financing from the TARP, with an additional $4 B available in February, contingent upon drawing down the second tranche of TARP funds.
Viability Requirement: The firms must use these funds to become financially viable. Taxpayers will not be asked to provide financing for firms that do not become viable. If the firms have not attained viability by March 31, 2009, the loan will be called and all funds returned to the Treasury.
Definition of Viability: A firm will only be deemed viable if it has a positive net present value, taking into account all current and future costs, and can fully repay the government loan.
Binding Terms and Conditions: The binding terms and conditions established by the Treasury will mirror those that were voted favorably by a majority of both Houses of Congress, including:
—Firms must provide warrants for non-voting stock.
—Firms must accept limits on executive compensation and eliminate perks such as corporate jets.
—Debt owed to the government would be senior to other debts, to the extent permitted by law.
—Firms must allow the government to examine their books and records.
—Firms must report and the government has the power to block any large transactions (> $100 M).
—Firms must comply with applicable Federal fuel efficiency and emissions requirements.
—Firms must not issue new dividends while they owe government debt.
Targets: The terms and conditions established by Treasury will include additional targets that were the subject of Congressional negotiations but did not come to a vote, including:
—Reduce debts by 2/3 via a debt for equity exchange.
—Make one-half of VEBA payments in the form of stock.
—Eliminate the jobs bank.
—Work rules that are competitive with transplant auto manufacturers by 12/31/09.
—Wages that are competitive with those of transplant auto manufacturers by 12/31/09.
These terms and conditions would be non-binding in the sense that negotiations can deviate from the quantitative targets above, providing that the firm reports the reasons for these deviations and makes the business case to achieve long-term viability in spite of the deviations.
In addition, the firm will be required to conclude new agreements with its other major stakeholders, including dealers and suppliers, by March 31, 2009.