Sounds like GM will be back asking for more money for the Detroit plants...
US Auto Aid Draft Bill: US Would Get Equity Warrants In Cos
Last update: 12/8/2008 4:16:46 PM
By Corey Boles
Of DOW JONES NEWSWIRES
WASHINGTON (Dow Jones)—The federal government would receive equity warrants equal to 20% of the emergency loans it is lending to the Big 3 auto makers to help them keep afloat, according to language in the bill seen by Dow Jones Newswires.
This would enable the taxpayer to potentially benefit if shares in the auto companies increased, the draft said, serving as protection of the public funds being used to prop up the ailing car makers.
The taxpayer would supersede all other creditors to the companies to be repaid once the companies’ financial fortunes turn around.
The loan program will be available to General Motors Corp. (GM), Ford Motor Co. (F) and Chrysler LLP.
The legislative language has been sent to the White House for its consideration, a senior House Democratic aide said.
The aide cautioned that the legislative wasn’t final, and could be changed after the White House review.
A White House source confirmed the legislation had been received, and said the Bush Administration had concerns with aspects of it.
House Speaker Nancy Pelosi, D-Calif., plans to hold a press conference at 4:15 p.m. EST (2115 GMT) to provide an update on the proposed legislation.
All executive compensation would be closely monitored by a “car czar” appointed by the White House to oversee the loan program. Additionally, no bonuses could be paid to the top 25 senior employees, and no golden parachutes of any kind can be paid to departing senior employees.
No dividends can be paid to investors in the three companies while money is owed to the taxpayer.
The terms of the package are similar to the loans made to the financial sector earlier in the fall. The duration of the loans would be for seven years, with an interest rate of 5% charged for the first five years, and 9% charged thereafter.
The “car czar” would be an individual with executive experience appointed with authority to carry out program. The president could appoint additional advisors.
The individual would be tasked with establishing appropriate procedures to ensure the plans submitted to Congress by the three car makers form a viable long-term restructuring plan. Progress of this restructuring must be reviewed within 45 days.
The companies must submit a long-term restructuring program by the end of the first quarter of 2009. The plans must include efforts to rationalize costs, capitalization and capacity in all aspects of the companies operations, the draft says. They must include proposals to restructure existing debt, including the conversion of debt-to-equity if appropriate, it said. The draft also stated the companies must provide information on how they would move toward a product mix and cost structure that would be competitive in the U.S. auto marketplace.
The funds would be borrowed from a program created by Congress last year to lend money to the car makers to allow them to invest in cleaner technology.
More money will be appropriated by Congress to make sure that program can still go forward so that the auto makers are able to comply with tougher new emissions standards.
Any investment decisions of more than $25 million would have to be reviewed by the car czar.
Companies participating in the loan program would have to withdraw from any lawsuits challenging proposed state laws on emissions standards. All three of the Big 3 are currently involved in such legal challenges.
-By Corey Boles, Dow Jones Newswires; 202-862-6601; corey.boles@dowjones.com
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(END) Dow Jones Newswires
December 08, 2008 16:16 ET (21:16 GMT)