Opponents of plan for a new GM are painted as too risky: Bondholders question liquidation

NEW YORK, Jul 03, 2009 (Detroit Free Press - McClatchy-Tribune Information Services via COMTEX) -- GMCEQ | Quote | Chart | News | PowerRating -- Harvey Miller, General Motors Corp.'s top bankruptcy lawyer, told a federal judge Thursday that opponents of the government plan to quickly create a new company were asking the court to "play Russian roulette" with thousands of jobs and billions in taxpayer money and risk forcing a liquidation of the automaker.

On Thursday, the last day of a three-day hearing, GM's lawyers gave a forceful plea to allow GM to sell its desirable assets to a new GM, while letting the less desirable old GM assets remain in bankruptcy.

Objectors to the plan, Miller told the court, are saying: "If I can't get my pound of flesh, then let GM go down in flames."

Judge Robert Gerber did not rule and didn't say when he would. But several hurdles to a new GM were cleared this week. After last-minute negotiations, a deal was reached with the official creditors committee, the U.S. Treasury and GM over increasing the amount of taxpayer money to wind down the old GM.

The new amount will be about $1.2 billion, up from $950 million, Thomas Moers Mayer, a lawyer for the committee, told the judge.

Bondholders' lawyer says it's a bluff, U.S. won't allow failure

The U.S. Treasury's stated July 10 deadline to have a new GM approved -- or else force a liquidation of the automaker -- came under attack during the third and final day of bankruptcy court hearings over the issue Thursday.

Michael Richman, the lawyer for some small bondholders opposing the plan to create a new GM, questioned the urgency and doubted General Motors Corp. would be left to fail if the deadline passed without approval.

"I don't think ... the government is going to abandon GM," Richman said, calling the deadline a strategic tactic.

GM wants to use a provision of the bankruptcy code called Section 363 that allows for good assets to be sold off to create a new company.

In this case, the new company would be a new GM whose majority owner would be the U.S. government but that would be managed by many of the same GM executives as now.

Opponents argue that GM and the U.S. government are trying to do an end-run around the traditional Chapter 11 process that would presumably give bondholders and those with product liability claims more of a voice in the process.

Is it a sale?

In theory, if opponents can show it is a sham sale to avoid their vote, they can knock out the sale, legal experts say.

"The sad fact is that GM and Treasury are rushing this through a 363 sale to avoid the time and complications that would arise if they followed the typical Chapter 11 route," Anthony Sabino, a law professor at St. John's University in New York, told the Free Press.

"This is at the expense of various constituencies whose interests are sacrificed in the haste to expedite GM's restructuring."

Richman told the judge: "There is no real purchaser in this case. The government is not setting any deadlines based on commercial" justification.

Meanwhile, GM argued that just because the government was acquiring the automaker didn't preclude it from being an actual sale.

"There's a sale. There's a real purchase price," Miller told the judge in response.

Miller attacked opponents, saying they have not proposed a viable alternative and that preventing the sale would jeopardize tens of thousands of jobs and the U.S. auto industry.

Liquidation, he said, would be "catastrophic and irreversible."

Furthermore, Miller said, attempts to delay the process were being made only by parties trying to improve their leverage in attempts to get more money.

Avoiding negotiations alleged

But Richman argued that GM and the government had picked a bankruptcy strategy in an attempt to avoid negotiating with certain creditors.

He said there was no proof that GM's assets were losing value while being in bankruptcy, noting that GM Chief Executive Officer Fritz Henderson had testified that retail sales in June were better than expected. Overall sales in June were down more than 30% compared with a year ago.

Harry Wilson, a member of the White House's auto task force, testified Wednesday that the government doesn't plan to provide additional restructuring money if the automaker is unable to get approval for the new GM by July 10.

If the deadline passes without approval, Richman said the government would react sensibly. He essentially called the deadline a bluff by the government, indicating a disbelief that the government would walk away at this point.

"The government has repeatedly said it wouldn't allow GM to fail," he said.

GM's Miller said to consider the deadline a a lie would be to take "an awesome gamble" that could negatively affect other stakeholders, including union jobs and bondholders who already had agreed to the deal.

A deal to keep liabilities

One other new development Thursday was the revelation of a deal to keep GM's worker compensation liabilities with the new GM. GM's plan previously called for those liabilities to be left behind with the old GM, where they would have been in competition with other creditors for the limited leftover assets.

Miller said a deal was agreed to because the State of Michigan was threatening to not approve the new GM to be self-insured if it didn't agree to take on the old liabilities. An inability to be self-insured would cost the new company a lot of money.

Contact TIM HIGGINS: 313-222-8784 or thiggins@freepress.com

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