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An unofficial committee calling themselves "family and
dissident GM bondholders" on Tuesday sought designation as a formal
committee, arguing in a court filing that "there are significant
questions about the economic realities" of GM's bankruptcy plan. Like Chrysler, GM plans to use the bankruptcy court to sell a majority of its assets to a new entity, the "new GM," backed by the government. GM's remaining assets, the "old GM," will then be liquidated to help pay off creditors. Attorneys for GM have said in bankruptcy court that about 54% of holders of GM's $27.2 billion bond debt have agreed to exchange their debt for a 10% equity stake in "new GM" and warrants to acquire a further 15%. These noteholders include Franklin Templeton Investments, JMG Capital Management LLC, Western Asset Management Co., Marathon Asset Management LLC and Eastbourne Capital Management LLC, court filings show. But the unofficial group of dissident bondholders, represented by Patton Boggs LLP, said 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. "While such an 'agreement'
has been touted as a template for all bondholders -- including holders of
billions of dollars' worth who have not yet been heard from -- and is now
embedded in the transfer of assets scheme ... there are significant
questions well beyond whether it is really supported even by a
majority" of the bondholders, the group said in its request to become
an official committee. The group continued: "Among other questions not yet answered is the extent to which the institutions that reportedly are supporting that plan received contemporaneous bailout funding from the [g]overnment, and otherwise engaged in hedging strategies in anticipation of the 'agreement.' " The unofficial committee said it represents more than 1,500 bondholders holding about $400 million in debt, consisting mainly of family investors and "non-institutional" bondholders, who "have had no opportunity to participate in negotiations, no access or means to engage in hedging strategies, no access to federal bailout funds, and no meaningful opportunity to have their important, distinct, and different situation heard and represented in this case." Ad hoc committees such as the
family and dissident bondholder group typically seek official status
mainly because, once granted such status, their attorney fees are paid
by the bankrupt estate. Also, while ad hoc committees can participate
in a case as much as they want, bankruptcy attorneys say that courts
tend to consider requests from official committees with more weight. Judge Robert E. Gerber of the U.S. Bankruptcy Court for the District of New York has yet to schedule a hearing to consider the request. - John Blakeley See earlier story about GM bondholders from Dealscape
CategoriesComments
From: Gary S.,
A Chapter 11 is supposed produce a plan on how to return a company to profitability and repay the creditors. The major issue facing GM and the U.S. Treasury in bankruptcy court is the proposed payout to the UAW and the bondholders. Both of these entities are unsecured creditors and should be equal in the repayment priority list The bondholders borrowed GM close to $28 billion dollars that was most likely used to build the auto assembly plants in Russia, China, South America and Mexico needless to say auto plants and equipment in the United States. The UAW was given IOU’s from GM with regard to its health care benefits to the tune of $20 billion dollars. So when GM created a reorganization plan they presented the UAW with a 50% cash payment to the health care plan, six billion dollars in preferred stock paying 9% and 17.5% in common shares plus warrants for an additional 2.5% in stock. To the bondholders they offered 10% percent equity in common stock and warrants for an additional 15%. The warrants in both cases are based on GM reaching specific capitalization values. The UAW’s payout share is equal to approximately 75 cents on the dollar while the bondholders will receive 10 cents on the dollar with perhaps another 15 to 20 cents on the dollar if the stock warrants are included. Is this fair? The U.S. Treasury believes so and their pundit’s cry out that the bondholders should not care what the UAW received but be grateful on what they were offered. While the GM bankruptcy is about creating a new GM from the old GM the court has to address the issue of two equal unsecured creditors receiving a disproportionate payout. If you look at the absolute priority rule both the UAW’s health care benefits and the creditors are of equal footing. While in most bankruptcy cases the bondholders generally receive a reduced payout there are cases where employee health care benefits were eliminated and no compensation provided by the court. So how will the court look upon this inequitable payout? Which leads back us to the issue of equality? The bondholders lent GM money to run their operations and without that money there would be no GM. The US Treasury which plans to take ownership of GM knew beforehand what they were getting into before injecting money into this firm. They were aware of both the UAW healthcare and bondholder liabilities So why is there and inequitable payout? Remember it was the Obama administration that ordered that the bondholders only receive a 10 % payout. The court is independent and does not have to accept GM’s proposal. I hope the court looks at this and provides an equitable solution.
Posted on:
June 13, 2009 1:19 PM
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On
the same day that the U.S. Supreme Court declined to stand in the way
of Chrysler LLC's easy walk through bankruptcy, the first rumblings of
resistance to a similar strategy undertaken by General Motors Corp.
emerged.
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Zombie (not even a bank) Fake and does not meet requirments for a bank. All funds given to GMAC by goverment, and can not raise fund on it's own. Fake bankruptcy by GM, Goverment has ruin may faith in cars. . . banks. .