Posted on 12/06/2012 3:13:02 PM PST by grundle
A New York federal judge may rule imminently on a case that could reverse the General Motors (GM) bailout and send the company back into bankruptcy, according to sources close to the case.
At issue is a backroom deal hatched by GM to fulfill the Obama administration’s demand for a quick bankruptcy, draining the automaker of nearly all of its cash on hand and leaving it in worse shape than it was when it collapsed in 2009.
One condition of GM’s bailout was to shore up its overseas subsidiaries. On the eve of entering bankruptcy, the company cut a $367 million “lock-up agreement” with several major hedge funds to prevent GM Canada from failing. The agreement ensured that GM could spin-off its liabilities to “old GM,” while using a multi-billion dollar bailout to create a new company.
All of that could be reversed if bankruptcy Judge Robert Gerber reopens the process and rules in favor of old GM trustees, who are suing the hedge funds at the center of the lockout agreement.
“In this particular situation, there’s $1.3 billion in liabilities, but that’s just what’s officially back on the table if the court rules for old GM,” said a bankruptcy expert close to the negotiations. “If those go back on the table then everything could be back on the table and [new GM] would have to address them.”
Those liabilities, which include old GM’s debt and product liabilities that pre-date bankruptcy, are valued at $30 billion, a sum that would wipe out the company’s $34.6 billion cash reserves.
Negotiators representing both sides of the case met in New York on Thursday to try to settle the suit through mediation rather than a court order.
“They’re feeling pretty good about it,” said an industry insider who spoke to one of the hedge fund negotiators on Thursday.
Gerber, the federal judge who initially approved the sale with little hesitation, now has the power to reverse the entire auto bailout. He has expressed deep frustration with the company for failing to disclose the deal, leading some to speculate that he may overturn one of President Barack Obama’s signature achievements.
“When I approved the sale agreement and entered the sale approval order I mistakenly thought that I was merely saving GM, the supply chain, and about a million jobs. It never once occurred to me, and nobody bothered to disclose, that amongst all of the assigned contracts was this lock-up agreement, if indeed it was assigned at all,” Gerber said in July.
“The judge has made it very clear that he is greatly dissatisfied with the process,” one analyst told the Washington Free Beacon in October. “He’s basically implying that GM hid it from him and that reopening the sale is a possibility.”
If Gerber takes that course the company could be forced to return the $30 billion taxpayer bailout that it received through the course of bankruptcy, on top of the new liabilities.
“It’s nice to see that GM is profitable again, but if all the liabilities come back to roost, short that stock,” the bankruptcy expert said.
A GM spokesman declined comment since the litigation is pending.
The Canadian and American governments played vital roles in the deal and pushed GM to negotiate as quickly as possible.
“Officials from the U.S. and Canada were very much involved—they were in the building when the deal was being negotiated,” an insider familiar with the deal said in October.
The Treasury Department, which oversaw the auto bailout, did not return emails for comment.
The company is taking the possibility of a negative ruling from Gerber very seriously. GM attorneys filed court documents saying that the lawsuit “could create a chaotic situation for GM Canada, spawn new litigation in other forums, and potentially provide a windfall to the noteholders.”
The bankruptcy expert said if the two sides cannot come to an agreement on Thursday, Gerber could preside over one of the most historic rulings in bankruptcy court history.
“This has tremendous implications for future of American business and bankruptcy precedent,” he said. “It means more than just GM—this is the rule of law and how creditors are treated in the United States legal system.”
It would take a man of integrity to admit he screwed up, accused obama of hustling him and reverse his decision.
The GM bailout was so unspeakably corrupt that I am boycotting that company and its successors (whether named “New GM” or otherwise) forever. If they go back, do it honestly, and make the bondholders and others who were stiffed the first time around whole, I will reconsider. I doubt that those who were ripped off in violation of contract law, bankruptcy law, and common law are holding their breath in anticipation of justice, not with a corrupt communist in our White House.
Somebody representing the union administration will pay a visit to this judge in the middle of the night and convince him to rule in a way that won’t harm him and his family’s health.
No GM for me either. I won’t reconsider however. They won’t miss my business.
Exactly. A similar offer to the one John Roberts couldn’t refuse.
Please Judge Gerber, just do it! The whole GM “bankruptcy” was a sham. Screwed Republican-owned dealerships, hosed those who were shareholders and bond holders, Forced management to resign, and handed the company over to the UAW. Just hope that the judge is really pissed off about being lied to.
Al Quaeda is alive and GM is Dead!
Here is a better explanation of the deal they cut.
http://www.detroitnews.com/article/20120927/AUTO0103/209270473
So now it's considered a "windfall" when one makes a loan or investment, secured by a "NOTE."
Bernard Madoff swindled people out of billions of dollars. Sentenced to 150 years in prison.
Barack 0bama swindled America out of $6 trillion. Sentenced to 4 more years as Warden.
0bama: Fake black (Mulatto) man. Fake Messiah. Fake American. How many fakes can you fit in one Zer0? “C0mmander Zer0.”
Next they will be saying just what a smart guy Johnny ("I simply do not know where the money is, or why the accounts have not been reconciled to date.") Corzine is.
John Corzine, a Democrat, and 1 year, and seven month's (or just 19 months), from March 2010, to October 2011, was CEO of MF Global Inc., The company filed for bankruptcy protection in October 2011. Certified Smart Guy.
Profitable because 'Rat-infested town govts, 'Rat-infested city govts, 'Rat-infested state govts, and 'Rat-infested national govt are typically buying cars from Government Motors.
[I call it the "national" govt because it likes to "nationalize" whole industries]
No GM or Chrysler...in my driveway.....
.... sure hope the fellows at Ford don’t do anything foolish....
bkmk
...see how long the Volt last, GM loses over $48,000 making Obama’s car. They should have called it the Dolt!
I have a 2K3 Silverado now that is 10 years old. I will never buy another GM product. They were pretty dishonest during the whole bailout process.
I have a 2K3 Silverado now that is 10 years old. I will never buy another GM product. They were pretty dishonest during the whole bailout process.
Probably will find a horse head in his bed one morning. Or he could end up like Hoffa if he makes the UAW mad.
Go the Zero Hedge the other day.
GM is "Stuffing the Pipe" Again...
http://www.zerohedge.com/news/2012-12-03/gm-channel-stuffing-wtf
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