Moody's Investors Service said it still sees a 70 percent chance of bankruptcy for Detroit's automakers, given the difficulty of winning sweeping concessions from creditors out of court.
While the Obama administration would prefer that General Motors Corp and Chrysler LLC restructure outside of bankruptcy, it is clearly putting bankruptcy forward as an option, the ratings agency said.
"Given the lack of progress achieved and the additional progress that will be required in the revised plans, this threat will need to be seen as credible in order to compel adequate movement on the part of stakeholders," Moody's said in a note dated Monday.
GM is under pressure to cut unsecured debt by two-thirds and make half of its remaining payments into a union healthcare trust in the form of equity rather than cash. It has until June 1 to complete a reorganization plan. The government has warned the alternative would be bankruptcy.
Chrysler has until April 30 to complete an alliance with Italian automaker Fiat.
Moody's said Chrysler faces a more difficult burden in demonstrating its viability than does GM, and has the highest risk of filing for bankruptcy. It said Ford Motor Co's bankruptcy risk is moderately below 70 percent.
In the event of a bankruptcy filing by any of the Detroit automakers, there is a high likelihood that the government will act to prevent a free-fall or uncontrolled bankruptcy in order to contain the severe disruption to the supply base and the broader economy, Moody's said.
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