By Tomoeh Murakami Tse and Peter Whoriskey
Washington Post Staff Writers
Thursday, May 28, 2009
The government would retain significant control over the restructured General Motors under an Obama administration plan that would allow U.S. officials to directly name or influence the appointments of the vast majority of a new 13-member board that would oversee the company, sources familiar with the discussions said.
The plan calls for federal officials to directly appoint five or six members to the board after GM emerges from its expected bankruptcy, the sources said. Another six would roll over from GM's existing board, but even these directors would reflect the government's influence since GM is reconstituting its board under government direction.
The United Auto Workers' health-care trust would name one director to the company board, the sources said, adding that Canada is likely to appoint a board seat as well.
Details of the shape of GM's new board emerged yesterday as the Obama administration continues its sweeping efforts to revive the nation's ailing auto industry, on the same day that a U.S. bankruptcy judge began a highly anticipated hearing on the sale of Chrysler to Italian automaker Fiat. General Motors could face a similar bankruptcy filing as early as Monday, and some paperwork could be submitted this weekend.
While President Obama has said he has no interest in running GM or Chrysler, into which the government has poured more than $20 billion combined, he has said officials have an interest in protecting the taxpayers' investment. Nevertheless, federal officials are preparing to be deeply involved in the companies well after they emerge from their respective bankruptcies.
"I don't think that we should micromanage," Obama has said. "But I think that like any investor, the American taxpayer has a right to scrutinize what's being proposed and make sure that their money is not just being thrown down the drain."
GM moved closer to bankruptcy protection yesterday as bondholders snubbed the company's request to swap most of the $27 billion they are owed for a small amount of stock.
Hours later, Judge Arthur J. Gonzalez, who is overseeing the Chrysler case, began hearing arguments on Chrysler's motion to approve the sale of most of its assets to a new entity jointly owned by Fiat, the UAW and the U.S. and Canadian governments.
More than 300 objections have been filed by a long list of Chrysler's lenders, dealers, retirees, suppliers and others. Yesterday's hearing in a Manhattan courtroom lasted more than 10 hours, ending around 8 p.m. If the judge approves the sale, which he is widely expected to do, the government-orchestrated transaction would take place before June 15, meeting the Obama administration's goal of a quick and "surgical" reorganization of the iconic manufacturer.
In one of the more tense moments during the court proceedings, Robert Manzo, a restructuring expert hired by Chrysler late last year, was questioned by an attorney for some of the automaker's first lien lenders regarding the contents of e-mails he exchanged with Matthew Feldman, a member of the Treasury Department's auto task force. The task force is charged with overseeing the restructuring of Chrysler and GM.
In the e-mails, which were exchanged the day before Chrysler's April 30 bankruptcy filing, Manzo offered to try to come up with a way to close the gap between the government's offer to repay lenders at a reduced rate and what some lenders were demanding.
But Feldman, a prominent bankruptcy lawyer and a partner at Wilkie, Farr & Gallagher who was tapped by Treasury this year, responded: "It's over. . . . I am not talking to you."
Feldman also added that the "President doesn't negotiate second rounds," and wrote, "We've protected your management and board. And now you're telling me to bend over to a terrorist like Lauria? That's BS." Tom Lauria is a bankruptcy attorney for White & Case, the firm that has been representing senior lenders that have objected vigorously to the sale. Obama has blamed those lenders for forcing the automaker into bankruptcy. The e-mails, along with other communications, were turned over to the court by the Treasury.
In another e-mail exchange, one of Chrysler's attorneys characterizes the June 15 deadline for the sale as "hurried" and an "effort to stuff the judge." Chrysler lawyers, who tried unsuccessfully to block the messages from being entered into court, have argued repeatedly that Chrysler is a wasting asset and that a speedy bankruptcy proceeding was critical to the automaker's viability.
Last night, a Treasury spokesperson said in a statement that "the task force made every responsible effort to avoid bankruptcy, including a last minute effort to achieve 100% consent of the senior lenders."
Under questioning from Kurtz, Manzo said his firm, Capstone Advisory Group, which has already been paid $9 million for its services by Chrysler, would receive $17 million more upon the consummation of the sale, $10 million of which Manzo would personally receive. Manzo was asked whether that was incentive enough for him to make the sale happen, and he responded that though it was a lot of money, it was not enough to buy his integrity. Gonzalez later noted that such fees are customary in bankruptcy proceedings.
Earlier in the day, Gonzalez denied a request by Indiana state pension funds for a continuance of the sale hearing. The lenders, represented by Kurtz, contend that the government-orchestrated sale of Chrysler violated their rights as senior secured lenders to the automaker, and that under the proposed sale they would recover less than junior lenders. The Indiana funds collectively hold about $42 million of the $6.9 billion in senior secured debt.
Gonzalez said during the proceedings last night that he did not expect to rule on the sale until at least Thursday, possibly Friday.
Last night Fiat executive Alfredo Altavilla testified that he, Fiat chief executive Sergio Marchionne and former Exxon Mobil director Lou Noto would serve on the new Chrysler's board.
Tse reported from New York. Staff writers David Cho and Kendra Marr in Washington contributed to this report.