A U.S. federal judge in the GM bankruptcy case late Sunday approved the sale of the troubled automaker’s assets to a "new GM," court documents showed.
Judge Robert Gerber, in giving his approval, said it “is the only available means to preserve the continuation of GM’s business.” Lawyers wrapped up their closing arguments in the bankruptcy case Thursday, giving Gerber the long holiday weekend to make his decision. Hanging over the case was a July 10 deadline imposed by the U.S. Treasury, which said it would walk away if a decision hadn’t been made. Three days of hearings were held in bankruptcy court in New York, during which representatives of GM’s unsecured bondholders were able to present their arguments regarding the company’s reorganization. The representatives said they shouldn’t be left behind in GM’s bankruptcy process, arguing that such a move is not legal. Michael Richman — an attorney from the firm Patton Boggs, representing a group of dissident bondholders — addressed the judge about “the absence of real choice in the dominance of the government,” referring to the U.S. Treasury’s role in pushing forward the bankruptcy process.
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He said the Treasury, in imposing its July 10 deadline, was using a “my way or the highway” attitude in refusing to consider alternate means of restructuring. The court should not rush to get the deal done by July 10, he said. “Since filing Chapter 11, GM’s assets are not wasting, not deteriorating and not melting,” he argued. Oliver Parker, who said he was representing himself as a bondholder, told the judge, “it is not my interest, or any bondholder’s, for GM to liquidate. All we want is a chance to negotiate with the government fairly.” David Jones, of the U.S. attorney’s office representing the federal government in the case said, “The government is not simply sacrificing principle for expediency, as we are accused of doing. We are using established law. The evidence is clear that the sale achieves the highest possible recovery for the assets being sold.” Much of Wednesday’s testimony came from Harry Wilson, a member of the auto team that is helping GM and the U.S. Treasury with the bankruptcy process. “This business can not withstand a process of uncertain duration,” said Wilson, who has made a career out of investing in distressed firms. “GM was far too large, too complex and too complicated to survive a [routine] Chapter 11 process.” Mark Salzberg, an attorney with Washington-based Patton Boggs, representing unsecured bondholders of GM, asked Wilson a series of questions about the reasoning behind leaving bondholders out of the bankruptcy process. Wilson said one of the strategic benefits of a 363 transaction, in which the preferred assets of the old GM are transferred to the new GM, is that “consent of bondholders was not required.” Wilson said there were other benefits, including “speed, certainty and the ability to leave liabilities that did not have any benefit to the enterprise.” New GM The Detroit-based automaker, which filed for court protection on June 1, wants to use bankruptcy to create a new company and shed crushing debt and expensive contracts. Under the plan, U.S. taxpayers would end up owning 60 percent of the new GM, with other stakes held by Canadian governments, bondholders and the United Auto Workers union. Holders of $27 billion in GM bonds would get stock in the reorganized company, as would a union-controlled trust fund that would take stock rather than the $20 billion in cash it had been owed to pay future retiree health care costs. Those 650,000 retirees would have their coverage reduced. GM plans to close more than a dozen factories, drop U.S. brands and close up to 40 percent of its network of 6,000 dealerships. A successful and swift move through bankruptcy is crucial to GM’s restructuring and a key test of the Obama administration’s efforts to rescue GM and Chrysler. Chrysler’s bankruptcy was approved on June 1, just hours before GM entered Chapter 11. The U.S. Supreme Court turned back an attempt by creditors to block the Chrysler bankruptcy. In a move that could smooth its restructuring, GM filed documents in U.S. Bankruptcy Court in New York late last month, saying that it had agreed to accept legal responsibility, post-bankruptcy, for drivers who are injured by vehicle defects in old cars. ‘Business is doing better’ General Motors is trying to turn itself around amid slumping auto sales and a severe recession. On Tuesday, GM’s chief executive testified that the company’s June sales were stronger than expected — partly because the bankruptcy process is going swiftly. “Business is doing better for a number of reasons, one of which being that this process will be quick,” said General Motors CEO Fritz Henderson.
In 2008, GM announced its largest-ever annual loss, $38.7 billion. The company has $27 billion in debt. In May, its stock slipped below $1 a share for the first time since the Great Depression. Lawyers representing a variety of claims against GM — including ones asbestos- and consumer-related — subjected Henderson to a barrage of questions in testimony. The decision to leave their clients’ claims out of the bankruptcy process was concluded during negotiations with the U.S. Treasury, he said.
