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There is a 70 percent probability that the restructuring plan for U.S. automakers will consist of a prepackaged bankruptcy financed by government loans to get GM and Chrysler through to 2009, Moody’s said in a report dated Dec. 15. Under that scenario, bondholders would be likely to lose less than 75 percent of their investment, Moody’s said.

The Moody’s assessment comes as the White House weighs a bailout of the automakers. GM and Chrysler are seeking $14 billion in federal funds to keep operating through the first quarter of next year. GM debt traded yesterday for as little as 7.7 cents on the dollar, so if Moody’s recovery prediction is right, bondholders stand to gain.

“We believe the potential loss for creditors under this scenario would exceed the loss that would occur in a scenario where the restructuring did not involve a bankruptcy filing, but will probably be less than the 75-100 percent range associated with a freefall bankruptcy scenario,” Moody’s analysts Mike Mulvaney and Bruce Clark wrote in the report.
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Moody’s assigned a 25 percent probability that the United States will bail out the automakers with no bankruptcy, and a 5 percent chance the automakers will go bankrupt without government assistance.

The Bush administration agreed Friday to consider aid options, including use of the Treasury’s Troubled Asset Relief Program, after Senate Republicans refused to take up the plan passed by the House earlier in the week.

Sen. Bob Corker (R-Tenn.), who tried to broker the failed Senate compromise legislation, proposed a plan that would require automakers to offer bondholders 30 cents on the dollar and set wages similar to those paid by foreign companies such as Volkswagen.

“We think there is a declining level of support for the initial plan discussed, in which it was the view of auto manufacturers that they are on the right track and the problem is one of liquidity,” Clark said on a conference call with reporters yesterday.