Moody’s sees bankruptcy in automakers’ future
By Daniel at 16 December, 2008, 3:47 pm
By Shawn Langlois, MarketWatch
Last Update: 12/16/2008 2:43:00 PM
SAN FRANCISCO (MarketWatch) - While the White House remained mostly mum about the
next chapter in the car bailout saga on Tuesday, Moody’s Investors Service said
there is a 70% chance the U.S. government will provide aid in prepackaged
bankruptcy scenario.
The credit ratings agency also put the probability of a federal bailout without
bankruptcy at 25% and said a “freefall bankruptcy” with no assistance has only a
5% chance of taking place.
Under the most probable scenario, the government would offer support by providing
or guaranteeing debtor-in-possession financing. If this were to unfold, losses
facing bondholders would probably be less than 75%, according to Moody’s.
If the government were to rescue the industry outside of bankruptcy courts,
Moody’s said that the degree of economic disruption and direct financial loss
would be contained but risks of a bankruptcy beyond 2009 would still exist.
Still, this route would be the best for bondholders, Moody’s explained.
A bankruptcy without help, while unlikely, could have a devastating impact on
bondholders, who could lose their entire investment due to the negative consumer
sentiment toward the Detroit Three that it would trigger, Moody’s said.
“Freefall bankruptcy in the next few weeks would throw the broader economy into
chaos, costing the economy 2.5 million jobs at its peak impact in summer 2010 and
pushing the unemployment rate to a depression-like near 11%,” Mark Zandi, chief
economist for Moody’s affiliate Economy.com, said.
“The cost to the U.S. Treasury as tax revenues plunge and demands for government
services soar in the eroding economy is an estimated $240 billion in fiscal years
2009-10,” he added. “This makes the $14 billion request from GM (GM) and Chrysler
appear insignificant by comparison.”
Meanwhile, White House spokeswoman Dana Perino on Tuesday said there is no
imminent announcement on the way regarding any potential financial assistance
from the government.
“Ware taking the time to try to do it right, and weighing all of the options,”
she said. “And, of course, we’re talking to them, and we’re talking amongst
ourselves, and we’re trying to figure out how could we help companies, if we
decide that we need to, become viable and competitive in the long term.”
General Motors Corp. shares rose 3.2% to $4.22 while Ford Motor Co. (F) sat out
the broader market rally to fall less than 1% to $3.15.
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