General Motors seek $22.5 billion Government Funding

WASHINGTON - General Motors (NYSE: GM) is requesting the U.S. government to consider funding the company with a combination of secured term loans, revolving credit, and preferred equity to complete its aggressive restructuring and fund its ongoing operations amid an uncertain economic environment.

In the Dec. 2 submission, GM indicated that under a U.S. downside volume scenario, the company would need funding support of approximately $18 billion. In addition, GM assumed that the $4.5 billion U.S. secured revolver credit facility would be renewed when it matures in 2011.

In the current baseline forecast, near-term industry volumes are similar to the December 2 downside scenario, and so GM's forecast indicates the company will need the $18 billion that was requested in December. In addition, based on current credit market conditions, it cannot be assumed that the company will be able to rollover the $4.5 billion revolver in 2011.

Therefore, GM is requesting federal funding support of $22.5 billion under its current baseline industry volume scenario. If the U.S. industry deteriorates further, a scenario depicted in the company's new, lower downside volume scenario with U.S. industry volume of 9.5 million units in 2009 and 11.5 million units in 2010, GM would require further federal funding, estimated currently at an additional $7.5 billion, which could bring total Government support up to $30 billion by 2011. Under the company's baseline outlook, repayment of federal support is expected to begin in 2012.

Additional financial support might be required in 2013 and 2014 if GM has to make contributions to our U.S. pension funds. In an update to the Dec. 2, 2008 submission, recent valuations indicate that GM's U.S. pension plans are currently under-funded as of Dec. 31, 2008. At this point, it is premature to conclude whether the company will need to make additional pension contributions, as the funded status of the pension plan is subject to many variables, including asset returns and discount rates. GM is currently analyzing its pension funding strategies.

During 2009-2014, GM also is requesting funding support from the governments of Canada, Germany, the United Kingdom, Sweden, and Thailand, and has included an estimate of $6 billion in funding support by 2010 to provide liquidity specifically for GM's operations in these countries.

Finally, the plan submitted today discusses the issue of bankruptcy as a potential option for restructuring, concluding it would be a highly risky, extremely costly and time-consuming process. This reaffirms management's position that bankruptcy is not in the best interests of GM or its stakeholders. The overriding risks are the significant impact a bankruptcy would have on the company's revenue stream and the resulting huge debtor-in-possession funding support that would be required from the government, as such funding is not available from traditional sources in today's market conditions. Accordingly, accomplishing GM's restructuring out of court remains by far the best approach for all constituents.

"Our viability plan requires significant sacrifices from all GM stakeholders: management, employees, unions, suppliers, dealers, investors and bondholders," Wagoner said. "But these are the kind of actions we need to take to survive the current industry crisis, and position GM for sustainability and success. This plan, in effect, signifies the reinvention of General Motors for the 21st century. We are working non-stop to put this plan into action, and we greatly appreciate the support and encouragement we continue to receive as we take these important steps toward viability."

GM's leadership team will continue to work with its key stakeholders and the newly formed Presidential Task Force on Autos as it proceeds with its restructuring. In accordance with the loan agreement, GM will submit its second progress report to the U.S. Treasury on March 31. This progress report will be the basis for the Task Force to issue a 'Plan Completion Certificate' to Congress, which confirms GM's long-term viability.

Source : Equity Bulls

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