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June 25, 2009 6:05 PM

GM Update: Dissident Bondholders Not Backing Down

Posted by Zach Lowe

Delphi's bankruptcy may end up taking nearly a half-decade, but General Motors appears to be on the fast track to reemerging into the regular world after a judge today approved $33 billion in bankruptcy financing for GM and lawyers for torts claimants withdrew their requests to have official committees appointed to represent them in the case, according to the New York Times

That last development got us wondering: Would the dissident bondholders also back down from their request for their own official committee to act alongside the court-appointed committee of unsecured creditors? The answer is apparently no, according to Michael Richman, cochair of the bankruptcy practice at Patton Boggs. As we told you on Tuesday, Richman and his Patton Boggs team asked federal bankruptcy judge Robert Gerber to appoint a separate committee for those bondholders--many of whom are individuals and families--holding small slices of GM debt. Richman argued that the creditors committee is not adequately representing the interests of the smaller bondholders because it appears to be going along with a plan to sell GM that could jeopardize those bonds--or wipe them out almost entirely. 

Gerber was unconvinced, saying the creditors committee would do its best to represent all bondholders. 

After that hearing on Tuesday, Richman told reporters he would talk to his clients--a committee of three bondholders--and discuss whether they wanted to continue their fight for an independent committee. He tells us today that they will indeed fight on. (Richman says about 2,000 bondholders holding about $500 million of GM debt have reached out to him via a Web site for bondholders.)

There is a lot at stake. An independent committee would give the bondholders a much more powerful presence in the case--and force GM (and, by proxy, the U.S. government) to pay their legal fees. (Indeed, Gerber characterized the request for committee as a naked attempt to have GM pay the bondholders' legal fees.)

The bondholders complain that the plan to sell most of GM's assets out of bankruptcy in a Section 363 sale will benefit some unsecured creditors and hurt others, according to court records. The retiree trust for the United Auto Workers, for instance, will gain a large minority stake in the new GM, while the individual bondholders may have to settle for pennies on the dollar, attorneys have said. 

Richman will get his chance to question the sales plan starting Tuesday, when GM and its legal team at Weil, Gotshal & Manges call a number of high-powered executives, including former GM chief executive Fritz Henderson, to the witness stand to testify in favor of the proposed sales plan. Richman says he plans to question them aggressively about the plan. 

We think Judge Gerber's courtroom might be an interesting place to be next week. 

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