Terms of the auto loan – and intangibles

The White House announced a $17.4 billion loan package for GM and Chrysler this morning. According to the Fact Sheet (courtesy of the Wall Street Journal), here are the details:

Binding Terms and Conditions: The binding terms and conditions established by the Treasury will mirror those that were voted favorably by a majority of both Houses of Congress, including:
* Firms must provide warrants for non-voting stock.
* Firms must accept limits on executive compensation and eliminate perks such as corporate jets.
* Debt owed to the government would be senior to other debts, to the extent permitted by law.
* Firms must allow the government to examine their books and records.
* Firms must report and the government has the power to block any large transactions (> $100 M).
* Firms must comply with applicable Federal fuel efficiency and emissions requirements.
* Firms must not issue new dividends while they owe government debt.

In addition, according to the New York Times, the loan would be called for immediate repayment if the companies cannot meet a viability standard by March 30.
What is unclear is the government’s recourse in case of bankruptcy — which would likely be triggered by calling in the loan. The government’ would get first claim on the companies’ assets, include the intangible assets such as the patent portfolio. (Generally, as I understand it, if it is not explicitly included, IP is automatically included. The problem is finding out if someone else has a claim on those assets — including a license.)
But what would the government do with those assets? There is a great opportunity to use this as a case study in the value of intangibles. The deal gives the government the right to look at the books and records. Treasury should use this power to go in and find out what the companies are really worth — specifically in terms of their intangibles assets. Such an audit would set a standard and raise the awareness of the issue.

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