Court Authorizes GM to Pay Pre-Petition Claims of Essential Suppliers, along with Continued Assistance for Suppliers from U.S. Treasury
June 29, 2009

On Friday, the U.S. Bankruptcy Court for the Southern District of New York issued an order authorizing General Motors (GM) to pay pre-petition claims of "certain essential suppliers, vendors and service providers." In addition, the court authorized the continuation of the troubled supplier assistance program and continued participation in the U.S. Treasury Auto Supplier Support Program for the auto manufacturer, which filed for bankruptcy on June 1.

It is also ordered that "the debtors are authorized, but not directed, in the reasonable exercise of their business judgment, to pay all, or a portion, of the Essential Vendor Claims upon such terms and in the manner provided in this order," reads the order issued on June 25. Likewise, GM is authorized to enter into trade agreements with essential vendors "as a condition to payment of their Essential Vendor Claims."

The court notes that the company should determine essential vendors by considering which suppliers are limited source suppliers "without whom [they] could not continue to operate without interruption; which suppliers "would be prohibitively expensive to replace;" which suppliers present "an unacceptable risk should they cease the provision of truly essential services or supplies;" and "which groups of suppliers are susceptible to liquidity constraints."

GM will be required to maintain a report of its Essential Vendors and the amount paid to them and supply it every two weeks until the 363 Transaction (the process by which GM will sell its assets to the New GM) closes to the Official Committee of Unsecured Creditors.
The order goes on to authorize GM to continue to provide Troubled Supplier Assistance and to make all payments and extend all accommodations "to any suppliers that may become financially or operationally distressed ..."

The Auto Supplier Support Program was created in March to provide up to $5 billion in financing to auto suppliers.

In GM's initial motion requesting this action, filed early in the proceedings, the company notes, "Support for the Essential Vendors is further justified because many of these companies will not be able to sustain their own operations unless their outstanding pre-petition obligations are paid. The failure of these Essential Vendors would result in the Debtors losing the ability to obtain parts and supplies in a manner necessary to operate their facilities or to effectuate the proposed 363 Transaction in an orderly and efficient manner."

GM has not released a list of suppliers. So far, many glass industry suppliers have remained mum on the state of the automotive industry with the recent bankruptcy filings of both Chrysler, which has already emerged from the process, and GM.

Phil Jentoft, commercial manager-aftermarket, for Dow Automotive, is one industry representative that has commented on the topic, and he says the company is monitoring the situation as it plays out.

"At Dow Automotive we fully understand the challenges facing the global automotive industry, and we trust that the actions being taken now will be successful," Jentoft told™/AGRR magazine. "We have been monitoring the situation and planning for contingencies. While the reduced vehicle build volumes have impacted Dow Automotive's sales, we continue to be committed to the future of the automobile industry, both in North America and around the world."

CLICK HERE for full text of Friday's order.

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