Loan Term
The loan term is three years. GM would get $4 billion by Dec. 29 and $5.4 billion by Jan. 16. Chrysler would get $4 billion by Dec. 29. GM would get another $4 billion by Feb. 17, provided Congress releases the TARP funds.
Under the terms of the plan, the government’s debt would have priority over any other creditors. The automakers also must provide warrants for non-voting stock, accept limits on executive pay, and give the government access to financial records.
No dividends may be issued until the loans are repaid. In addition, the automakers must cut their debt by two-thirds in an equity exchange.
For workers, GM and Chrysler would be required to make half of the payments to a union retirement fund in equity and eliminate a program that pays union workers when they don’t have work. Unions and management would have to negotiate a plan to have compensation and work rules in place by Dec. 31, 2009, that will make the U.S. companies competitive with foreign automakers. The requirements could be modified by negotiations with the union and debt holders.
5 Percent
GM and Chrysler will pay at least 5 percent on the loans, and would pay 3 percentage points over the London interbank offered rate should Libor exceed 2 percent.
The average cost of loans to high-risk, high-yield companies in dollars is a premium of 10.5 percentage points more than Libor, according to Standard & Poor’s Leveraged Commentary and Data unit.
GM shares rose 83 cents, or 22.7 percent, to close at $4.49 in New York Stock Exchange composite trading. Ford rose 11 cents, or 3.9 percent, to $2.95. Before today, the companies’ shares had tumbled 85 percent and 58 percent this year.
Cerberus Capital Management LP, the New York-based buyout firm that owns Chrysler, said today it will hand over equity in the company’s automotive operations to labor and creditors as part of the loan agreement. “Concessions by all relevant constituencies” are needed to restructure Chrysler, Cerberus said in an e-mailed statement.
Plan Criticisms
The plan “unfortunately singles out workers and clearly puts them at a disadvantage before negotiations have even begun,” House Speaker
Nancy Pelosi, a California Democrat, said in a statement.
Republican Senator
John McCain of Arizona, his party’s presidential nominee this year, said he regretted that the president decided to “give away” $17 billion to the automakers “while failing to receive any serious concessions from the industry.”
Senator
Bob Corker, a Tennessee Republican, said the agreement is “open to interpretation” and that he hopes the Obama administration “has the will to enforce tough concessions.” He added in a statement, “The best solution would have been definite terms.”
The conditions are largely those set out in the legislation passed by the House and blocked in the Senate.
Foreign Companies
Representative
Barney Frank, a Massachusetts Democrat who helped craft the House plan, said in an interview that “it’s outrageous to be giving foreign companies the right to set wages for American workers.”
The plan otherwise was mostly what was negotiated in the House, Frank said.
Democratic Senator
Carl Levin of Michigan said the plan “gives the industry breathing room.” In a conference call with reporters, he said Bush was wise to set the automakers’ restructuring targets “as non-binding goals which are subject to negotiations.”
“We’ve got a huge amount of work to do over the next 90 days and beyond,” GM Chief Executive Officer
Rick Wagoner said at a Detroit news conference.
“Chrysler is committed to meeting these requirements,” the company’s chief executive officer,
Bob Nardelli, said in a statement.
The government rejected letting the companies go bankrupt, as had been urged by some lawmakers opposed to a bailout.
‘Weak Job Market’
Bankruptcy would “worsen a weak job market and exacerbate the financial crisis,” Bush said. “It could send our suffering economy into a deeper and longer recession.”
The terms of the loans represent a major challenge for the automakers,
Maryann Keller, an independent auto analyst and consultant in Greenwich, Connecticut, said in a Bloomberg Television interview.
“The restructuring they’re going to have to go through will be huge,” Keller said. “I can’t see a way for GM to operate properly with the capital structure they have.”
Joel Kaplan, Bush’s deputy chief of staff, said representatives of Obama, who takes office Jan. 20, have been kept informed of the administration’s actions.
The Treasury secretary would in effect be a “car czar,” making sure the automakers meet deadlines and having the authority to revoke the loans, Kaplan said. The Bush administration didn’t want to designate an independent overseer with a month left in office.
Kaplan, asked whether Chrysler should merge with GM, sidestepped the question.
“We are not going to tell the manufacturers what the right structure is for them to be viable; we’re just going to tell them that if you want taxpayers’ assistance, you’re going to have to make those decisions, and you’re going to have to prove it,” he said.
Treasury will need to go to Congress to get the remaining $350 billion in TARP funds released, including the $4 billion in additional loans to the automakers, Kaplan said. That may be left for Obama’s administration, he said.
To contact the reporters on this story:
Roger Runningen in Washington at
rrunningen@bloomberg.net;
John Hughes in Washington at
Jhughes5@bloomberg.net
Last Updated: December 19, 2008 17:21 EST
