Chrysler Bankruptcy Challenge Could Snag GM Restructuring
June 09 2009 - 10:28AM
Dow Jones News
General Motors Corp.'s (GMGMQ) creditors, facing deep
concessions in bankruptcy court, could be emboldened to seek better
terms if Chrysler LLC's lenders succeed in their challenge.
The U.S. Supreme Court on Monday held up Chrysler's sale to Fiat
SpA (FIATY) - a move the U.S. government has warned could lead to
liquidation - at the request of several Indiana pension funds and
consumer groups that opposed the transaction.
The opposition, if it succeeds, could bode poorly for GM in the
midst of a parallel government-orchestrated Chapter 11 filling it
hopes to complete no later than September.
"This will give them a sense that if they appeal to the courts,
the higher court may overturn the bankruptcy court and require that
these groups have to recognized as a class and that class to be
treated fairly," said bankruptcy attorney Jerry Reisman.
GM is seeking to use the court process to shutter thousands of
auto dealers, slash debt owed by unsecured bond holders and cut
benefits to non-union retired workers.
Dealer and retiree groups already have begun to fight the moves
in court. And while just over half of GM's bondholders signed off
on a deal to swap $27 billion in debt for equity, another faction
has vowed to fight as well. The dissenting bondholders are
represented by Thomas Lauria, the lead attorney for the pension
funds challenging Chrysler.
In the Chrysler case, the pension funds argued the sale,
orchestrated by the U.S. and Canadian governments under bankruptcy
laws, was illegal and that the federal government exceeded its
bailout authority with its involvement. Justice Ruth Bader
Ginsburg, in a brief order on Monday, said the court will extend a
temporary stay put in place by an appeals court pending further
court action.
GM has faced contentions similar to those outlined in the
Chrysler case that other creditors are receiving preferential
treatment under the plan crafted by the U.S. Treasury.
Under the GM deal, the U.S. and Canadian governments will own
72.5% of the restructured GM. The auto maker struck an out-of-court
deal with the United Auto Workers in which union agreed to reduce
GM's obligation to retirees and other concessions in exchange for a
12.5% equity stake in the new GM.
GM bondholders are receiving no cash and a far smaller equity
stake than the union or government. Dealers and retirees, meantime,
are left with little recourse as they lose their business and
benefits.
-By Sharon Terlep, Dow Jones Newswires; 248-204-5532;
sharon.terlep@dowjones.com.