Congress Poised To Consider Big Three Bailout
Congress appears poised to take up legislation to create a $14 billion credit facility for the auto companies. Whether or not it will pass is an open question as this is written. Under the draft legislation agreed to by House and Senate Democratic leaders and the White House, a "car czar" would be appointed by the President and given authority to offer "bridge financing" to the Big 3. It appears that GM and Chrysler would apply for the assistance early on, while Ford continues to say it may not need the help.
In exchange for the support, the companies would have to agree to submit long range restructuring plans to the "czar" so they could be approved by March 31, 2009—or 30 days later if an extension is granted. If their plan is not approved by the deadline their loans would be recalled immediately. Over time, if the "czar" found that adequate progress is not being made towards meeting the goals of the plan he or she could accelerate repayment of the loans. Other strings attached to the support include executive compensation limits and a prohibition on the payment of dividends so long as the loan is outstanding.
House leaders have said previously they plan to wait for the Senate to act before taking up this bill. If that plan holds, they may have to keep their Members in session through the weekend. On the Senate side, prospects for a 60 vote majority to shut off debate are murky. At present, only one GOP Senator, George Voinovich of Ohio, has said he would support the bill. Several GOP Senators have expressed opposition and are preparing amendments. So the debate in the Senate could take some time and may not produce sufficient support.
In any case, the development of this bill shows some of the lessons learned in the past three months as Congress has developed and watched the administration implement legislation. The bill's strong oversight provisions, its taxpayer protections, and the stiff conditions on the money all demonstrate that Congress has heeded some of the calls for greater transparency and accountability in the management of these kinds of programs. It is also worthy of note that by setting a March 31 deadline for the approval of restructuring plans, the legislation lays the table for a potential second round of auto bailout legislation in the spring of 2009. So it would appear that the Obama Administration and the new Congress may be back in the thick of this issue very soon even if this legislation passes in the coming days.
Given the potential action on this legislation and its relation in time and politics to the financial industry bailout, we will continue to follow-it as part of Financial Reform Watch.
Notice: The purpose of this newsletter is to identify select developments that may be of interest to readers. The information contained herein is abridged and summarized from various sources, the accuracy and completeness of which cannot be assured. This alert should not be construed as legal advice or opinion, and is not a substitute for the advice of counsel.