Procerity

The $17.5 billion dollars of TARP funding extended to General Motors and Chrysler requires the companies to extract concessions from bondholders, employees, and retirees. Bondholders will have to accept equity in exchange for the money they have lent. Employees will have to sacrifice their “jobs bank” and take a pay cut. And retirees will have to accept company stock as funding for their health care trust. Under normal circumstances, such concessions would be decided by a court through a Chapter 11 bankruptcy proceeding. The current automaker bailout, however, is relying on negotiations instead of court imposed discipline.

Procerity’s Prognosis: Expect the negotiations to drag on until bankruptcy becomes unavoidable.