June 5, 2009 4:21 PM

Covington Partner Adds GM to Bailout Resume

Posted by Brian Baxter

When the economic crisis brought several storied U.S. companies to its knees last fall, General Motors turned to a team of outside legal, financial, and political advisers to help it weather the storm.

One of the biggest names on that list: Covington & Burling's Stuart Eizenstat, head of the firm's international practice. The Beltway insider is a veteran of three presidential administrations and it didn't hurt that Eizenstat worked with current Treasury secretary Timothy Geithner when he served as deputy secretary of the Treasury under President Bill Clinton. (Click here for Eizenstat's full CV.)

But Eizenstat, who was assisted on the GM work by Covington government affairs practice cochair Roderick De Arment and associate Michael Nonaka, is more than just a lobbyist.

He's also advised on some of the most high-profile government rescue packages over the last 30 years: New York City's fiscal meltdown in the late seventies, Chrysler in the early eighties, and now GM.

The Am Law Daily caught up with the 66-year-old Eizenstat to discuss his own bailout history.

Hello Stu, thanks for taking the time. How did you get this work for GM?

[I was contacted by] Erskine Bowles, who's a member of the [GM] board and president of the University of North Carolina. He was also a former chief-of-staff to President Clinton.

And what advisory role did you perform for the company?

I was essentially helping the company draft the December and February plans which were sent to Congress and then later to the administration. There was some limited outreach to the government arranging an initial meeting with Rick Wagoner and one or two meetings with [Bush] administration officials. There was also some discussions with the staff on the Hill in preparation for the two [congressional] hearings. But the bulk of our work was on the actual restructuring and viability plans and preparing Rick for the hearings. That was 99 percent of the work.

I understand that this is something you've had some experience with before.

Yes, I coordinated the last Chrysler bailout with Bill Miller when he was Treasury secretary [during the Carter administration].

Do you see similarities between that bailout and what's going on today?

In the broadest sense of the term, obviously GM is much larger and much more complex. But you have the same basic problems of profitability, making a decision on whether bankruptcy was an option, dealing with the UAW and the bondholders, and restructuring the makeup of the company. Of course the weren't as widely dispersed as the 50,000 now for GM, it was a much more limited and concentrated number for Chrysler. But there were a lot of what I would call macro similarities.

And Lee Iacocca was brought in to run Chrysler, correct?

Iacocca was brought in. His predecessor, whose name escapes me now, was taken out. That was one of the implicit conditions. And it was the same cast of characters: deep reductions in benefits and salary for the UAW and the bondholders taking a haircut. But we avoided bankruptcy and not only did Chrysler pay everything back, but we made a $350 million profit for the government under the warrants.

Did Chrysler spin off assets at the time?

Yes, they were required to sell off certain divisions, like their tank division, which were unprofitable. They used to make tanks for the Army. But they came out a much more lean and focused company and that worked for 30 years.

When you began advising GM this time around, was the hope in the beginning to avoid bankruptcy?

Of course. Only at the end when the bondholders wouldn't come along [did bankruptcy become an option]. That's the major reason.

Did you negotiate directly with the GM bondholders?

I did not and I don't know who did.

Are you still advising GM or has your role concluded?

As a result of the bankruptcy, they have terminated all consultancies.

What do you think this history of bailouts says about the U.S. auto industry?

I don't want to get into that. I can't get into that.

Let's talk about your work for municipalities. It seems like that might come in handy these days.

Yes, well, when I was President Carter's domestic policy adviser, New York was going bankrupt. We did a major bailout for them with Felix Rohatyn by creating the [Municipal Assistance Corporation], which Felix became the head of. And we negotiated with Mayor Koch and Mayor Beame.

Have you been taking any calls from California?

Well maybe they're on the other line. You're taking up my telephone time!

All interviews are condensed and edited for grammar and style.

Make a comment

Comments (1)
Save & Share: Facebook | Del.ic.ious | | Email |

Reprints & Permissions

The comments to this entry are closed.