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GM will most certainly file for Chapter 11 on June 1 amid much pomp and circumstance -- President Obama will likely give a speech, and there will be countless "location shots" of the U.S. Bankruptcy Court for the Southern District of New York in lower Manhattan. But we can't help but feel it will all be a little anticlimactic. The automaker's filing has been in the works for months, and as the deadline set forth by Obama's task force has wound down, every move has been played out publicly. But the most compelling and core issue of all of the maneuverings implicit in a GM filing -- which Chrysler LLC's bankruptcy has already given us a glimpse of -- is the obvious notion that government pressure is being exerted to subvert bankruptcy law. In Chrysler's case, it was the auto workers' union getting a substantial payout even though secured lenders took a multibillion dollar haircut. Clearly, that leapfrog move violates the absolute priority rule. Perhaps the president, who squawked about hedge funds holding things up, felt the Wall Street backlash justified the federal government's eclipse of standard bankruptcy practice. So it wasn't really a surprise that the non-TARPers laid down their weapons, disbanded and disappeared into the night, and that Chrysler's sale to Fiat SpA should be blessed by Judge Arthur Gonzalez of the Manhattan court sometime Friday. For GM, it's the unions again getting a substantial payout while other unsecured creditors -- namely, bondholders -- are getting treated differently (again a violation of bankruptcy law). Considering both the size and scope of GM and the fact that it would be much harder to demonize the automaker's bondholders -- they are largely pension funds, not those horrible hedge funds -- we could have an interesting showdown. After all, what the Obama administration is doing in bankruptcy court is akin to how a city government uses eminent domain. Clear out the obstacles in the name of progress, even if a bondholder's or a property holder's rights have to be sacrificed. The best hope for the feds in a GM bankruptcy is that things will go as they did in Chrysler, in which the controversy over creditors' rights never gained traction. GM could be on the same path. After the president's task force sweetened its offer for bondholders -- one that mandates that they support GM's reorganization plan -- a group representing 20% of them jumped on board. While certain others at this point remain opposed, GM could potentially have enough support by the Saturday voting deadline to force any dissenters to go along for the ride. And thus, before GM's bankruptcy would even start, the government would have been able to steamroll through all of its major opposition. As a result, what would be left? A bankruptcy in name only, and certainly not one that will make future creditors in cases yet unfiled feel confident about their rights. - Ben Fidler See related story about bankruptcy attorney fees from Dealscape
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The entire bankruptcy bar, if not the entire nation, it seems, has been consumed with whether General Motors Corp. (NYSE:GM) will file for Chapter 11 or not, and when. And with good reason. It would be the largest industrial filing in U.S. history, and it's likely to put every 
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I keep reading about how the Chrysler and GM restructurings violate the absolute priority rule. Apart from the fact that is not technically relevant to a 363 sale, my question is this: Recognizing that the "secured" lenders are admitedly massively undersecured, is it not the case that the absolute priority rule requires payment of the secured portion in full and that the unsecured portion is of equal priority with the pension claims? For example, in Chrysler's case the bondholders are getting at least the full amount of the liquidation value of their collateral and, by Chrysler's expert's estimation, perhaps as much as 2X that value. Under these circumstances, is the absolute priority rule violated when the VEBA gets a long-term note and some untradeable stock?