In the course of fewer than 60 days this summer, the North American automotive industry was fundamentally reorganized and restructured as both General Motors and Chrysler reorganized under Chapter 11 of the United States Bankruptcy Code. Ford was the only one of the “Big 3” not involved in a Court-driven restructuring. Both General Motors and Chrysler, of course, had and indeed continue to have substantial operations in Canada and the Canadian operations were a critical part of the overall restructuring of both companies.
The Cassels Brock Business Reorganization Group was privileged to act as counsel to the Federal Government of Canada (through Industry Canada) in the General Motors and Chrysler restructurings. The CBB team was instrumental in advising Industry Canada throughout the process leading up to and implementing the respective Chapter 11 filings and the U.S. section 363 (bankruptcy) sales. The restructurings involved over US $12.5B of new Canadian government financing and the resolution of a host of extremely time-sensitive issues, including cross-border bankruptcy, M&A, financing, litigation, intellectual property, tax and labour and employment complexities that had to be resolved for the restructurings to be successful.
Chrysler and GM are watershed cross-border restructurings for a host of notable reasons, including:
- the extent of the close U.S. and Canadian governmental cooperation in the DIP and acquisition financing of the restructurings and throughout the course of the Chapter 11 proceedings and the post-restructuring phases. Of fundamental importance to Canada was ensuring the sustainable viability of the Canadian operations, the maintenance of Canadian production, commitments to R&D and capital spending programs, the cultivation of enhanced relationships with Canadian Universities and Colleges and the protection of Canadian suppliers.
- the coordination of the complex U.S. Chapter 11 proceedings with the necessary protection of Canadian operations during the formal restructuring period without the need for parallel proceedings in Canada;
- an unprecedented level of co-operation between the Canadian federal government and the Province of Ontario on matters involving the overlap of federal and provincial jurisdiction;
- the sheer speed of the restructurings, which saw both GM and Chrysler reorganize and emerge from Chapter 11 in under 45 days including the closing of the section 363 sale transactions in both cases, combined with the challenges presented by GM and Chrysler’s highly-integrated cross-border manufacturing operations and the potentially negative impact of the bankruptcy proceedings on GM’s and Chrysler’s sales;
- governmental participation in the equity ownership of both New Chrysler and GM; and,
- reconfiguration of the position of two of the Detroit three key North American automobile manufacturers and, indeed, the global auto industry.
From a Canadian perspective, one of the most difficult challenges was to ensure the protection of Canadian operations during and following the Chapter 11 reorganizations. Neither Chrysler or GM filed in Canada and, in view of the risks of adverse action by creditors in Canada, a variety of checks and balances had to be created and implemented. These included highly structured initial credit facilities that contemplated the potential for subsequent restructurings, tranched and conditioned Canadian funding into the U.S. Chapter 11 DIP facilities, various Canadian liquidity buffers, dedicated acquisition financing and an extremely high degree of participation in the U.S. negotiations with close coordination with the United States Treasury Department. The ever-present risk of unexpected adverse events and the possibility of a complete business melt-down necessitated multi-track preparations, including the possibility of separate Canadian proceedings and the need for formal Cross-Border Court-to-Court Protocols.
We are certain that a large measure of the success of the General Motors and Chrysler restructurings is due to the active and knowledgeable involvement of very senior representatives of the Canada Department of Industry and the Canada Ministry of Justice who were instrumental in guiding a situation that could have proved financially and economically disastrous for Canada and the United States into a successful restructuring of two very significant multinational companies in record time and under intense time pressures. It was crisis management at its finest and we are happy to report that the outcome was so successful for all of the stakeholders who were involved in the process.