U.S. Judge Rejects GM Bondholders' Request
Wednesday, June 24, 2009
NEW YORK, June 23 -- A federal bankruptcy judge on Tuesday denied a request by a group of dissident General Motors bondholders for special status in the case, which would have required the automaker to pay their legal expenses as they contest the company's proposed restructuring.
GM's dissident bondholders -- who say they represent about 2,000 individuals with $500 million of the $27 billion in GM bonds -- argued during a two-hour hearing in Lower Manhattan that they are not being adequately represented by the official 15-member committee of unsecured creditors.
U.S. Bankruptcy Judge Robert E. Gerber disagreed, noting in part that the official committee included two trustees who have a duty to all bondholders.
"GM has creditors of many different types, and so does the creditors committee," Gerber said, adding, "Everyone wants to fight their fights using someone else's money. . . . We commit that only in extraordinary circumstances."
In bankruptcy proceedings, a company must cover legal and other professional fees for parties that are given special status as a committee.
After the hearing, the dissident bondholders' attorney, Michael Richman, said he would talk to his clients to see if they will press ahead with their opposition. Richman said many of the dissenting bondholders are of limited means.
The dissident bondholders say that GM's restructuring plan, orchestrated by the Obama administration, puts them at an unfair disadvantage. Under the plan, bondholders would get a 10 percent stake in the new GM, plus warrants to buy an additional 15 percent of the new GM if its value rises to certain levels.
By comparison, the federal government, which has committed more than $50 billion, would get a 60 percent stake and the United Auto Workers would receive 17.5 percent.
Meanwhile, the U.S. trustee, an agency of the Justice Department that oversees the administration of bankruptcy cases, filed an objection to GM's request to pay millions of dollars to financial advisers hired to help GM through bankruptcy, calling the fees "unreasonable" and "staggering."
Evercore Partners, a boutique investment firm, and AlixPartners, a turnaround consultant, are seeking $40 million for services while GM seeks to emerge from bankruptcy, on top of the more than $85 million already paid to the two firms before the automaker filed for bankruptcy on June 1, the U.S. trustee noted. The fees that Evercore, headed by former deputy Treasury secretary Roger Altman, and AlixPartners are asking Gerber to approve include "success" fees of $31 million, which the U.S. trustee characterized as a bonus, upon the completion of the sale.
These would be paid from the assets of the "old GM" after most of the automaker's assets are sold to a leaner "new GM."
A GM spokesman declined to comment on the matter. Spokesmen for Evercore and AlixPartners also declined to comment.
Separately, GM said Tuesday that it will cut 4,000 white-collar jobs by Oct. 1. By the end of the year, the company aims to eliminate about 6,000 salaried jobs. An earlier plan targeted 3,400 workers.
"It's part of this accelerated reinvention of the company," GM spokesman Tom Wilkinson said in an interview.
Staff writer Kendra Marr in Washington contributed to this report.