The court battle over the formation of Treasury-funded Vehicle Acquisition Holdings, LLC (a.k.a. New GM) will soon be joined. On June 30, Federal Bankruptcy Judge Robert Gerber will begin to assess the range of challenges to the government’s plans. Bloomberg reveals the quadruple threat facing the General Motors “reinvention.”
First up, the car dealer’s friend, Nebraska Attorney General Jon Bruning. Bruning’s anti-trust lawsuit found favor with the AGs from Connecticut, Kentucky, Missouri, Nebraska, Maryland, Vermont, Minnesota, North Dakota, Ohio and West Virginia. Bruning argues that, well, never mind. No traction there.
Second on the list: “Retired steelworkers and engineers also objected to the sale, saying it would leave GM without funds to pay health benefits to more than 50,000 union-represented retirees and their families.” They just want in on the UAW health care deal. A payoff should sort that out in short order.
The third threat is a strange one:
Chrysler LLC sold most of its assets to a group led by Italy’s Fiat SpA in another Treasury-funded deal to create Chrysler Group. The so-called new Chrysler said it doesn’t want its right to reject contracts with GM in its own bankruptcy case impinged by GM’s request to assume at least six contracts as part of the sale.
Chrysler’s decision to assume or reject contracts ‘must be adjudicated within the context of Chrysler’s own bankruptcy case,’ the Auburn Hills, Michigan-based company said in its objection.
As far as impediments go, this one won’t. Which leaves the real bitch . . .
Groups representing individual GM bondholders and tort claimants with product liability claims also filed objections yesterday. The individual bondholder group, represented by attorneys at Patton Boggs LLP, said it represents investors holding more than $400 million in GM debt. The group said in its objection that GM and the Treasury are improperly using a rushed sale rather than a proper Chapter 11 plan to restructure the automaker.
The tort claimants also argued the sale is “an illegal sub rosa plan” that treats the UAW benefit trust far better than other unsecured GM creditors.
“The preferential treatment of the UAW VEBA Trust violates the basic principle of equality that underlies the bankruptcy code and would not be allowed under a plan of reorganization,” attorneys for the tort claimants wrote.
There’s your war, right there. The Presidential Task Force of Automobiles (PTFOA) cut a mighty generous deal with the United Auto Workers’ (UAW) health care fund.
As we reported back in May, the UAW will receive a $10 billion payment into their Voluntary Employee Beneficiary Association (VEBA) health care superfund (paying off half of GM’s unfunded obligations in one fell swoop). And a seat at the Board of Directors for the VEBA’s rep. And a $2.5 billion promissory note, paid off in three installments (2013, 2015, and 2017). And 17.5 percent of the new post-C11 GM. And stock warrants for an additional 2.5 percent of the reorganized company.
Bondholders? Not so much. The argument that the union’s more important to New GM’s future is compelling pragmatically, but legally vulnerable. As we shall see. Oh, and we’re right back in Chrysler-land, where the majority of a bankrupt automaker’s bondholders are TARP recipients. In other words, bought and paid for.
Rule of law no longer matters. Just align yourself with the correct political machine and you get what you want.
(applies to both political parties, BTW)
Amazing that AFTER an injection of $50B, there still isn’t enough money to make everyone happy… Since this is GM’s first bankruptcy, it will be the quickest/easiest. I’m thinking there will be 1 more Ch. 11 and then finally a Ch. 7.
Chrysler probably won’t file for bankruptcy again.. They will just slowly shut down/dissolve with the UAW left holding the bag as majority owner.
Rule of law no longer matters. Just align yourself with the correct political machine and you get what you want.
(applies to both political parties, BTW)
Absolutely. This is why I call America “Earth’s newest third-world country.”
John
I have no doubt that “Judge” Gerber will give the PTOFA a free pass on this one. He is a guy who lives by the motto kiss what’s above you and kick what’s below you. He now knows that the 2nd Circuit, who is his real boss, won’t reverse him, or even be displeased. He will approve the 363 sale and be gratuitously nasty to the objectors.
The lawsuit representing individual bondholders would seem to ride on:
-if the bondholders are secured or unsecured
-if they are secured, if 90 percent of them agree with the bankruptcy plan.
If these bondholders are unsecured, they have no standing to try and force the PTFOA to pay them anything. The government, on the other hand, had the right to pay the VEBA trust fund, at the discretion of the government.
To do otherwise would be to force the 90 percent of secured bondholders to take a hit, and would go against the “greater good”, as the Supreme Court explained recently.
Just as a matter of principle, if the company goes down, why would I give anybody anything? Isn’t this the same argument made about banks and homeowners? Laws aside, why would I having all the money give anyone anything? If I was the Government ie. the one doing the bailout, laws aside, I’d do as much as I could without hurting myself politically. The American Fantasy (ie. dream) of some in favor of rule of law and equality for all, just got changed to serve the Fantasies of others, I guess. Bondholders are left like homeowners now, Many folks believe homeowners ought to left to fend for themselves, why not bondholders? Cause of laws? Tell that to 1900s women. If Bondholders have been fantasizing about American dreams, (like the majority) then they have similarity in mindset to every other money addict (ie. some homeowners, wall street, welfare recipients). The oligarchy is just chancing polarity I guess.
So everybody’s in it for themselves. But if we are not honoring the bondholders, then we’re proving that our word is no good. For that, we truly are doomed. But what else is new?
And what an awful picture. Beyond that, I simply don’t get it. Yeah, I read the caption, but soap and blood? Lost me on that one.
“I have no doubt that “Judge” Gerber will give the PTOFA a free pass on this one.”
Not really sure that it is a “free pass” to follow the law and go with the decision of the vast majority of secured bondholders.
“But if we are not honoring the bondholders, then we’re proving that our word is no good”
There is no bankruptcy without the agreement of 90 percent of secured bondholders. Unsecured bondholders are down on the food chain. That’s the law.
Bankruptcy law professors express concern over the Chrysler and GM deals, financiers say that the capital markets are threatened by the government’s actions, investors are shying away from companies that have unionized workforces or heavy gov’t involvement, and the president’s supporters keep telling us that there’s nothing to see here, everything is normal. Methinks they protest just a hair too much.
Let’s imagine that this wasn’t the gov’t loaning GM & Chrysler money but rather a bank, that proceeded to dictate restructuring terms that favor business partners of the bankm, people would immediately see the practice as corrupt.
Why would these objections to a 363 sale work any better against GM than they did against Chrysler?
“financiers say that the capital markets are threatened by the government’s actions, investors are shying away from companies that have unionized workforces or heavy gov’t involvement”
Who are these financiers? Are they in jail? Do I need to see them on FOX?
Have investors shied away from GE recently? GE who received TARP funds? Which TARP recipients have the investors shied away from recently?
Which companies with unionized workforces have these investors shied away from? Considering that the recession is hitting nearly all sectors, I find that argument disingenuous.
The bottom line is that you are a mouthpiece for the corporate line. Your words are dripping with poison for organized labor or anything that challenges the supreme power of the corporation, establishment or management.
We’ve seen guys like you for a long time. From the Pinkertons, to the mobsters who broke the bottles over the heads of striking garment workers; to the cigarette executives who testified that tobacco didn’t cause cancer before congress. You represent Kerr-McGee rather than Karen Silkwood; Monsanto rather than soldiers contaminated with Agent Orange.
Like Justice Roberts, you never vote for the little guy, only the establishment.
Ronnie Schreiber :
and the president’s supporters keep telling us that there’s nothing to see here, everything is normal. Methinks they protest just a hair too much.
+1. The unintended consequences of stretching the bankruptcy code aren’t getting much press.
Like it or not, this adds another headache to firms with union obligations.
Another interesting consequence:
The National Hockey League’s interest in franchise stability is under assault. A potential buyer of the Phoenix Coyotes (who are currently bankrupt) wants to buy & move the team. He is citing the Chrysler case in order to ditch contracts and obligations (to Phoenix) that would make it prohibitively expensive to move the franchise.
“investors are shying away from companies that have unionized workforces”
Then investors should be dumping UPS stock and buying Fedex, but they aren’t. AT&T, Safeway, Kaiser-Permanente, Verizon and Harvard University must all be up against the ropes to because they all use highly unionized work forces.
The bankers=good, unions=bad meme has run its course.
I think you called this one correctly. The small individual GM Bondholders who have been pushed to the side, had their legal right trampled upon, will be the David that brings the Goliath down. The bondholders are the SAME creditor class as the UAW VERBA, but for political expediency the government rewarded the UAW with 7X the recovery as the bondholders. Under the law all creditors of the same class must be treated equally. That’s the law. Only institutional bondholders were allowed to “vote”, of which only 54% agreed. Small bondholders where notified they could register objections to the plan no later than June 19th. The notices arrived June 19th. Its obviously an uphill battle against a corrupt system, but if some one doesn’t speak out we are all poorer for the loss.
The latest jokes is “What’s the difference between the Iranian Presidential election and the Institutional Bondholder vote to accept the GM/Task Force offer?
NOTHING! In both cases the Supreme Leader told the dissidents to shut up or suffer the consequences.
carlos.negros:
Who are these financiers?
People the financial press has reported on. Many like Bloomberg, The Wall Street Journal, & The Economist have sources predicting future higher interest rates for New Chrysler and New GM un-secured bonds. That many investors are unsympathetic to unions and will demand higher returns for (or shy away from) unionized firms’ bonds is a reasonable deduction.
Are they in jail?
I don’t think so. For credibility reasons, they usually don’t report felons’ opinions.
Do I need to see them on FOX?
Not necessarily. The print media is a better source.
“The bondholders are the SAME creditor class as the UAW VERBA, but for political expediency the government rewarded the UAW with 7X the recovery as the bondholders.”
The money used to pay the VEBA was TARP money, not money taken from bondholders. The government decided that in order for a structured bankruptcy to work, the unionized workers, as stakeholders, would need to buy in. The government had no obligation to pay bondholders or shareholders. If the government had not paid for the VEBA through tarp, the chapter 11 bankruptcy would not have been as likely. Chapter 7 liquidation would have been a possibility.
Tell us how much more non-secured bondholders would be getting from a Chapter 7 liquidation?
John Horner:
The bankers=good, unions=bad meme has run its course.
That is an oversimplification.
More accurate:
The Average highly-Unionized Firm In an Industry is a worse investment than the Average low or non-union Firm In an Industry.
Many like Bloomberg, The Wall Street Journal, & The Economist have sources predicting future higher interest rates for New Chrysler and New GM un-secured bonds.
This is the same financial press that largely failed to predict that a bankruptcy would occur in the first place. Financial journalists and pundits tend to know very little about their subjects, and their prognostications carry little weight. Let’s remember that it was Barrons (an affiliate of the WSJ) that was bullish on GM stock last summer.
That many investors are unsympathetic to unions and will demand higher returns for (or shy away from) unionized firms’ bonds is a reasonable deduction.
That does not mean that there is an impact on valuation. Look at historical data of assorted companies, and I believe that you will find no correlation at all between the presence of unions and the multipliers that are used to determine their value. The ability to grow earnings is the best indicator of what a stock’s future value will be.
If anything, the union situation more than likely helped GM’s price in recent years. For one, the union provided a convenient scapegoat for management’s failings, so that investors would fixate on the promise of cost reductions, instead of the more pressing problems of market share, brand erosion and a lack of pricing power. Without a union scapegoat, the market might have been smarter in its analysis, and punished the stock and bond ratings earlier than they did. A bankruptcy earlier in 2008 may have not been deemed worthy of a bailout at that time, and GM’s creditors would be in far worse shape than they will be now.
For another, the union pensions provided a source of cash to support GM during its failing last few years. Bankruptcy would have occurred earlier had it not been for GM management’s ability to suck pension money in order to subsidize operations.
Posters on this website are far more fixated on the trivia of the situation than are the markets that do the actual investing. Stability and earnings potential matter far more than the presence of a union. The Chrysler bondholders got all the cash and were paid out at a price above liquidation value, so if anything, bondholders can take comfort in the fact that when Uncle Sam intervenes, their returns will be higher than when he doesn’t.
Iw wrote
Amazing that AFTER an injection of $50B, there still isn’t enough money to make everyone happy… Since this is GM’s first bankruptcy, it will be the quickest/easiest. I’m thinking there will be 1 more Ch. 11 and then finally a Ch. 7.
It only goes to show you how far GM’s creditors let things go before the government ended up throwing GM into bankruptcy. This is something the creditors should have forced two years ago. I think it was the fall of 2007 that GM posted a $38 billion quarterly loss that they termed a non-cash “accounting adjustment”, and Wall Street bought that. Actually, it was a reality adjustment that the creditors should have given far more weight.
Yes, the non-labor unsecured creditors are getting screwed, and to a lesser extent, the secured creditors too, but to a certain degree it’s their own fault for failing to act with due diligence.
The government had to put billions of new money into the table, and it’s a public policy decision to determine what is done with it. Even from December 2008 through the end of May 2009, while the Government was telling GM to come up with a plan, the creditors could have gotten their s**t together and thrown GM into an involuntary bankruptcy controlled by the creditors. Again they slept. Now they complain. Tell it to the hand.
Bondholders? Not so much. The argument that the union’s more important to New GM’s future is compelling pragmatically, but legally vulnerable.
Legally it doesn’t matter because the bondholder got all they’re entitled (and more because the gov is being generous for the sake of expediency). It’s pretty clear if the audience for their whining is analyzed.
Besides the legal basis, the “union” aka middle class employed by GM are more important in many aspects of the economy, often in subtle but very important ways especially in the kind of fraud-based (structured finance) economy we’ve been allowing.
–
-if they are secured, if 90 percent of them agree with the bankruptcy plan.
Actually no. No “vote” is involved. Given that chap7 is the alternative, none of them are in a position to bargain anyway.
“Under the law all creditors of the same class must be treated equally. That’s the law.”
Not in a reorg it isn’t. Don’t stomp you feet about the Rule of Law unless you really know what you are talking about.
“Many like Bloomberg, The Wall Street Journal, & The Economist have sources …. ”
Have you noticed what a rotten job those financial repeaters (few are reporters) did in searching out the rot at the core of the financial system before the facade fell? How many of them pointed out Madoff’s scam? Zip, nada, none. They were too busy kissing up to the rich and the powerful. The financial press sells advertising to big time financial companies and sells subscriptions to real or imagined captain of the universe types. It is an echo chamber dedicated to the ongoing further concentration of wealth. I’ve subscribed to Forbes magazine for almost 30 years and only recently let my subscription to the WSJ lapse. Forbes actually does the occasional bit of investigative reporting of note. The WSJ does none.
My mother is a Small Bond Holder. Her retirement was in GM bonds. She has been requesting the lawyer in control of the trust to get out of them since 2007. She and her siblings have lost over $300,000 each.
Not sure who to blame here but I wish something positive turn up here.
“Under the law all creditors of the same class must be treated equally. That’s the law.”
Not in a reorg it isn’t. Don’t stomp you feet about the Rule of Law unless you really know what you are talking about. Very good advice Sir, I hope you take it to heart.
Please take some time and review the law….The priority structure is defined primarily by § 507 of the Bankruptcy Code (11 U.S.C. § 507.)
Kurt. :
June 22nd, 2009 at 7:36 am
“My mother is a Small Bond Holder. Her retirement was in GM bonds. She has been requesting the lawyer in control of the trust to get out of them since 2007. She and her siblings have lost over $300,000 each.”
“Not sure who to blame here but I wish something positive turn up here.”
Hello Kurt: First be sure they have regsister with http://www.mainstreetbondholders.com. There are hundreds of obejctions coming into the court concerning the sale of the GM good assets. The deadline was June 19th 5 PM. There are some lead dissenters represented by Patton and Boggs, plus several joiner groups. There is another layer of individual bondholders filling pro se lawsuits. Then there is a third layer of thousands of bondholders/UAW retirees writing letters of objection. The filing of documents is so backlogged that documents recieved by the court on January 17th are just being included in the document records. Electronic filing are posted sooner. It will take several days for all the objections to be posted on the documnet sites.
It is very interesting reading.
Please take some time and review the law….The priority structure is defined primarily by § 507 of the Bankruptcy Code (11 U.S.C. § 507.)
Bankruptcy judges are given quite a bit of leeway to reach a compromise solution.
In any case, it’s not terribly relevant here because everyone got what they were legally entitled to, all the tranches got what everyone expected (secured: everything, unsecured: nothing). The feds choose to deal with employees separately later as they are part of the ongoing concern of the new company.