LOS ANGELES - The creditor banks of bankrupt Daewoo Motor Co. have taken a stake in the Korean automaker's U.S. sales arm through a debt-for-equity swap aimed at keeping the distributor in operation.
The banks agreed last week to write off 90 percent of the U.S. company's outstanding debt - $36 million of the $40 million total - in exchange for an equity stake in the distributor.
Sources in Korea and at Daewoo Motor America told Automotive News that the U.S. company has been unable to get credit through conventional sources, necessitating the debt swap.
'We've been borrowing at loan-shark rates, since no one will talk to us,' the source said. 'These banks are buying a pig in a poke.'
This bleak picture is at odds with the longstanding insistence of Daewoo Motor America President D.J. Lee that the U.S. sales arm is profitable.
Jim Thomas, Daewoo Motor America general manager of public relations and customer service, reassured dealers last week that the company will continue to operate.
'Daewoo Motor America is still a separate and independent entity. This transaction is merely a way to ensure our continued operation,' Thomas said.
Dealers will continue to get floorplan and inventory financing through Daewoo's relationship with Primus as a third-party agency, he said.
Forgiving the debt will allow the distributor to gain future financing and continue to buy cars from the manufacturer, as well as meet payroll, Thomas said. American executives and managers were not informed of the terms of the deal, he said.
Lee did not return a phone call.
Betting on GM
The source said the creditor banks are gambling that General Motors will buy parent Daewoo Motor Co. The bankrupt company, weighed down by some $18 billion in due debt, is losing an estimated $120 million a month.
If the parent company fails to find a buyer, the source said, the creditor banks 'have a distribution network of nothing.'
GM has been the lead candidate to buy Daewoo since Ford Motor Co. walked away from talks last summer, but it has balked at the Korean company's debt load and labor problems.
In a surprise development late last week, the South Korean commerce minister, Shin Kook Hwan, gave GM only until the end of April to submit a bid for Daewoo. GM and Daewoo creditors have yet to start formal negotiations over a takeover price and conditions, and it is widely perceived in Korea that GM has been dragging its feet in a bid to bring down the final price.
'Daewoo Motor has to seek other ways to survive,' Shin told local reporters on Thursday, March 8.
The ultimatum caught GM officials by surprise. 'We haven't been informed of this deadline,' said Rob Leggat, director of corporate communications for GM Asia Pacific. 'Until we do, we can't respond to speculation or what's in the press.'
Staff Correspondent Oles Gadacz in Seoul contributed to this report