General Motors Corp. is believed to be preparing to file for bankruptcy by June 1 after being directed to plan for a filing by the U.S. Treasury Department, according to a report Sunday by the New York Times.
The Times, quoting unidentified sources, said the Treasury Department has directed officials at General Motor's (NYSE: GM) to lay the groundwork for a "surgical" bankruptcy filing that could last as short as a few weeks for portions of the company. Those portions would be the "good" parts of the company, and the "less desirable" parts of the company would remain in court for much longer and possibly be liquidated, according to the Times.
The parts of GM that may get bogged down in a lengthy court restructuring or liquidation include the "unwanted brands, factories and health care obligations," sources said in the report.
A report in the Wall Street Journal on Sunday said that any attempt at a "quick" bankruptcy for GM could face legal challenges from bondholders of the company.
GM has accepted $13.4 billion in federal bailout funds and has asked for at least $16 billion more. However, President Barack Obama rejected GM's initial restructuring plan and forced former CEO Rick Wagoner to resign before setting a new deadline of the end of May for the company to come up with an acceptable new plan.
Fritz Henderson, the new CEO of GM, said last week in an interview on NBC's "Meet the Press" that while GM was not ruling out bankruptcy, it was not inevitable.
Chrysler LLC also has accepted billions in government bailout funds, but Ford Motor Co. (NYSE: F) is the only one of the Big Three automakers from Detroit not to take federal funds.
On Friday, Standard & Poor's Rating Services lowered its debt ratings for Chrysler and GM, and added that bankruptcy is likely and could lead to the break-up of Chrysler.
The S&P said in its warning that it was lowering the debt ratings because of the increased possibility of bankruptcy if the two automakers don’t meet deadlines set by President Barack Obama’s administration, according to numerous media reports.
