Report: $40B in bankruptcy aid sought for GM, Chrysler

Is bankruptcy The Best Answer for GM, Chrysler's survival?

Outside advisers to the U.S. Treasury have started lining up the largest bankruptcy loan ever, talking with banks and other lenders about at least $40 billion in financing for General Motors and Chrysler in case the two automakers need it, the Wall Street Journal reports.

Administration officials said they are trying to find a way to restructure the two companies without resorting to bankruptcy proceedings, and that the latest efforts are "due diligence."

Initial discussions call for private banks to provide the financing, with the government guaranteeing or backstopping the loan. Lenders are reluctant to commit funding to GM or Chrysler for several reasons -- most are concerned they won't get all their money back. The government advisers also are looking at ways the Treasury could "prime" banks making the debtor-in-possession, or DIP, loans, so the government could be paid back before private creditors.

The estimated $40 billion in DIP financing that GM and Chrysler would need would be five times as large as the previous record for such financing, which is used to fund day-to-day operations while companies sort out their debt....More

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Chrysler News:Chrysler finally gets $4 bn aid from US govt

January 03, 2009

US auto major Chrysler on Friday said it has received four billion dollars as emergency loan from the government, a move to avert a collapse of the ailing automaker.

"Chrysler received an initial four billion dollar loan to help bridge the current financial crisis," the company said in a statement.

The amount is a part of the $13.4 billion lifeline approved by the US government for General Motors and Chrysler last month.

"This initial loan will allow the company to continue an orderly restructuring while pursuing our vision to build the fuel-efficient, high-quality cars and trucks," Chrysler chairman and chief executive Bob Nardelli said in the statement.

The loans to the auto makers would be provided under certain conditions, including a limitation on executive pay.

Moreover, US President George Bush had said that the companies have to come up with viable plans for restructuring by March 31, 2009.

The auto makers would be given "three months to get in place plans to get restructure which we believe they are capable of doing...," Bush had said.

The US President had pointed out that the entities have to pay back the loans if they fail to come up with restructuring plans.

Earlier, the US Treasury had thrown a $6 billion lifeline for GMAC, the finance arm of beleaguered carmaker General Motors.

GMAC is the major lender for General Motors's 6,500 dealers across the country.

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