The Work

June 15, 2009 6:38 PM

Patton Boggs Lawyer Takes Turn for Dissident GM Bondholders

Posted by Brian Baxter

As expected, dissident General Motors bondholders have lawyered up to oppose the bankruptcy sale of the embattled automaker to a new spin-off company.

But their counsel of choice isn't White & Case financial restructuring chair Thomas Lauria, the high-profile litigator who raised holy hell the past few weeks representing three rebellious Indiana pension funds. (Lauria fought all the way to the Supreme Court trying to block the sale of Chrysler's assets to Fiat.)

Bloomberg reported last week that the GM bondholders considered Lauria, who made his interest in the GM case well known, before the group ultimately chose Patton Boggs bankruptcy chair Michael Richman to handle their case.

Richman Richman (pictured at right) nabbed the work for three individual bondholders--Harold John of Chesterfield, Mo., Mark Modica of Chalfont, Pa., and Wade McGee of Elmhurst, Ill.--who comprise the unofficial Committee of Family and Dissident GM Bondholders.

"[W]e just thought [Richman] was a better fit for us," Modica told Bloomberg (the 48-year old bondholder is an employee at a Saturn dealership). "It was a difficult decision."

Richman already is making sure people understand how his strategy differs from that of Lauria's in the Chrysler case.

"We don't want to delay or prevent the transfer of assets from 'old GM' to 'new GM,'" Richman tells The Am Law Daily. "Our issue is not with that reorganization plan, it's with the effort by the parties who put the plan together to dictate the capital structure and ownership of the company outside of a bankruptcy plan."

While GM's institutional bondholders are supporting the asset sale, Richman worries that many of the automaker's individuals bondholders are getting left in the lurch.

"Our position is they can spin the assets off--that's done all the time in bankruptcy cases, there's nothing remarkable about it--but determining who owns it and in what proportions should be done in accordance with the law," he says. "The bankruptcy code has very specific protections and requirements for how you confirm a plan."

Richman feels that his clients are being dictated to by larger parties with a vested equity interest in a new GM free from liabilities, with a reorganization plan hidden beneath the guise of a bankruptcy sale.

"This does not appear to be a real sale. This is a reorganization plan that is being called a sale because the parties appear to want to evade the plan confirmation requirements," he says. "There is no independent third-party! The assets are being transferred to a company formed by the parties who are among the largest creditors in the case and then they're deciding to keep the equity for themselves."

Richman doesn't anticipate objections on behalf of his clients proceeding all the way to the Supreme Court as dissident bondholders did in the Chrysler case.

"I have a sense of cautious optimism that the bankruptcy court will say, 'Follow the law,'" Richman says. "And if I'm right about that, I don't think we'll see this going to appellate courts. Because if the bankruptcy court says just 'follow the law,' that's what the large creditors, the government, and the debtors can and will do."

Richman is being assisted on the GM matter by bankruptcy and restructuring partner Mark Salzberg, business department cochair James Chadwick, corporate finance partner R. Timothy Bryan, and associate Melissa Iachan.

The sale objection deadline is June 19.

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Why not pay the small bondholders (>$100k) at par and use a sliding scale after that?

I hope the court takes a hard look at the payout plan presented by the U.S Treasury. There is a horrific mismatch in the payout between the UAW’s health care benefits and the bondholders.

Bankruptcy code was established to prevent these games from being played and the court should put a stop to this as in the case of Northern Pacific Railway Co. v. Boyd, 228 U.S. 482 (1913).

I hope the Patton Boggs attorney arguments prevail in court and the court will follow rule of law.

Yesterday, June 22nd I received offical notification of the June 19th date for objections. Today, I was very upset with my broker. They, of course, feel not responsibility. Well who did not get the documents mailed in a timely manner. The post office tells me they may be a le to trace the envelope. As a small bond holder I am getting shafted.

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