| |||||||||||||||||||||||||
| |||||||||||||||||||||||||
 Chrysler Group
LLC's swift trip through bankruptcy court was supposed to be a case
study for General Motors Corp. And maybe it was, just not in the way
many observers expected. It appears the Chrysler bankruptcy has
provided not a playbook for GM creditors to recover more (or anything
at all for some), but rather a lesson: Standing against the U.S.
Department of the Treasury in bankruptcy court is a fruitless endeavor.
As we enter the home stretch of GM's bankruptcy -- the automaker will seek court approval next Tuesday of its plan to exit Chapter 11 majority-owned by Treasury, while leaving "bad" assets and massive liabilities behind in bankruptcy -- there has been only minimal resistance from creditors. GM's official committee of unsecured creditors on June 24 filed a limited objection to GM's proposal to sell its "good" assets to a Treasury-led acquisition vehicle. In almost every bankruptcy where unsecured creditors stand to recover nothing, the official committee is likely to fight the Chapter 11 plan at all costs, demanding some type of consideration. Not the case with GM. In its objection, the committee opposed only minor provisions of the deal, such as successor liabilities for injury claimants being left behind in the "Old GM." the group said in its objection: The committee recognizes that the proposed sale transaction is not perfect. Indeed, it will leave impaired numerous parties within the Committee's constituency. However, the committee is satisfied that no viable alternative exists to prevent the far worse harm that would flow from the liquidation of GM. Compare that to the posturing in the Chrysler's bankruptcy, where a group of three Indiana state pension funds -- led by Thomas Lauria of White & Case LLP and holding just a $42 million slice of Chrysler's $7 billion in senior debt -- took their fight all the way to the U.S. Supreme Court. Arguing that distributions to creditors from Chrysler's sale to Fiat SpA violated the U.S. Bankruptcy Code's absolute priority rule, the Indiana pension funds were prepared to see Chrysler liquidated just to ensure that creditors were repaid based on seniority. (The Supreme Court ultimately refused to hear their objection.) GM entered bankruptcy with a plan to subordinate an even larger sum of debt that Chrysler did, so it stood to reason that GM would have a harder time getting its creditors in line. So far, however, that hasn't been the case. When it filed for bankruptcy on June 1, GM told the court that holders of about 54% of its $27.2 billion bond debt had not only accepted the restructuring plan, but wanted it "executed quickly." To date, only several individual bondholders have objected to the sale, and an unofficial committee calling themselves "family and dissident GM bondholders"-- representing about 1,500 "noninstitutional" bondholders owed a fraction ($400 million) of GM's total bond debt -- have sought designation as a formal committee in their attempts to opposed the sale. Like the Indiana pension funds in Chrysler, these creditors have argued that all bondholders should receive a higher recovery under bankruptcy's absolute priority rule and questioned whether the 54% tally of supporting bondholders (based on e-mail and telephone calls) is accurate. But thus far there hasn't been opposition from a group of institutional debtholders large enough to stand in the way of GM's rush through court. Perhaps many of these creditors, as recipients of TARP money, don't want to bite the hand that feeds them (as was the case in Chrysler). Or maybe they see the writing on the wall. The reality is, even if such a group emerges over the next few days, recent history shows us that it will matter little. As we've seen in the Chrysler and Lehman Brothers Holdings Inc. cases, the powers of the Treasury trump the law of the Manhattan bankruptcy court. Terms of its $33.3 billion debtor-in-possession loan (of which Treasury itself is committing $24.2 billion) mandate that GM win court approval of the sale by July 10 and close the deal by Sept. 15. Also, Treasury, which will credit bid an estimated $48.7 billion in debt to acquire the "new GM," is obviously the only entity with the financial wherewithal and inclination to buy GM out of bankruptcy. So unless a group of bondholders brazen enough to force GM down the path to liquidation in the name of a higher recovery emerges, GM is well on its way to exiting bankruptcy without a fight. Calling Thomas Lauria? - John Blakeley See related story about Judge Gerber from The Deal magazine See Chrysler Dealwatch See GM Dealwatch
 Deal Video
    Community
 Elsewhere on The Deal.comDealwatch
The Deal MagazineCorporate Dealmaker
The Deal VideoCategories
Blog roll
Archives
| |||||||||||||||||||||||||
|
|
|
|
|
©Copyright 2009, The Deal, LLC. All rights reserved. Please send all technical questions, comments or concerns to the Webmaster.
Why is that all media outlets seem to forget that the Institutional investors own the totality of credit default swaps and that minimizing the return from GM maximizes their total return by collecting at PAR or a discount of PAR for an instrument that they may have purchased at large discount from PAR. Their interest is absolutely counter to that of the individual investor.